City Solutions v. Clear Channel Communications

• Decision Date: 24 January 2003
• Docket Number: No. C99-00060 WHA.,C99-00060 WHA.
• Parties: CITY SOLUTIONS, INC., Plaintiff, v. CLEAR CHANNEL COMMUNICTIONS, INC., Eller Media Co., and Adshel Inc., Defendants.
• Court: U.S. District Court — Northern District of California

242 F.Supp.2d 720

CITY SOLUTIONS, INC., Plaintiff, v. CLEAR CHANNEL COMMUNICTIONS, INC., Eller Media Co., and Adshel Inc., Defendants.

No. C99-00060 WHA.

United States District Court, N.D. California.

January 24, 2003.

Nelson E. Brestoff, Joel S. Moskowitz, Moskowitz Brestoff Winston & Blinderman, Los Angeles, CA, for Plaintiff.

Michael B. Green, Brobeck Phleger & Harrison LLP, San Francisco, CA, Richard S. Odom, Brobeck Phleger & Harrison, Los Angeles, CA, Brett M. Schuman, Brobeck Phleger & Harrison LLP, San Francisco, CA, Scott R. Campbell, Daniel S. Mason, Zelle Hofmann Voelbel Mason & Gette LLP, San Francisco, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR JUDGMENT AND DENYING MOTION FOR NEW TRIAL

ALSUP, District Judge.

INTRODUCTION

This case illustrates an important distinction under California fraud law: the difference between lost-profit damages and benefit-of-the-bargain damages. The jury found defendant Eller Media Company liable for $9,800,000. It now moves for judgment as a matter of law or for a new trial. As to the fraud verdict of nine million dollars, this order concludes that relief is required under FRCP 50. Judgment must be for Eller on plaintiffs fraud claim. As to the unfair-competition verdict, defendant's similar motion is DENIED. Defendant's motion for a new trial is DENIED.

PROCEDURAL HISTORY

As this order on post-trial motions will be the last ruling by the district court before appeal, the following procedural summary may assist the court of appeals. This lawsuit arises out of plaintiffs failed attempt to win a public-works competition in San Francisco. In essence, the action blames the prevailing bidder for misleading plaintiff in connection with prospective bids.

On March 12, 1998, the City and County of San Francisco issued a request for proposals ("RFP") for a "Comprehensive Pedestal-Mounted News Rack Program for the City and County of San Francisco." As part of its plan to eliminate newsrack blight, San Francisco sought to outlaw conventional newsracks and to substitute up to 1,000 new multi-publication, modular newsracks. The RFP sought a contractor to furnish, install and maintain the newsracks in return for the vendor receiving the right to sell advertising on the backs of a portion of the newsracks and/or through free-standing advertisements.

City Solutions, Inc., is a company that designs, constructs, installs and operates modular newsracks. Eller Media Company (now known as Clear Channel Outdoor, Inc.) is a leading outdoor-advertisement firm. Adshel, Inc., is a company that builds and operates bus shelters which, like modular newsracks, are another type of "street furniture." Clear Channel Communications, Inc., was the parent company of Eller Media Company at all material times and acquired Adshel shortly before the bids were due, a timing circumstance important to the fact pattern in this case.

During the spring of 1998, pursuant to a written confidentiality agreement, CSI and Eller executives held several meetings concerning a possible joint bid. The parties disagree as to what promises or representations were made at these meetings and whether those promises were false when made. All agree that steps were taken toward a joint bid before Eller told CSI, only a few days before the deadline for submissions, that Eller would not bid with CSI after all. Eller then bid with Adshel and won. CSI bid with others and lost.

CSI then sued Eller, Adshel and Clear Channel in state court. CSI sued Eller for breach of fiduciary duty, breach of the written confidentiality agreement, breach of an oral joint venture agreement, fraud and deceit, common law unfair competition, and violation of the California Trade Secrets Act. It sued Adshel for interference with contract and common law unfair competition, and it sued Clear Channel for common law unfair competition. Defendants removed this action to this court on the basis of diversity. Plaintiff then amended its complaint, alleging that Eller owed CSI fiduciary duties arising out of their confidentiality agreement and an oral joint venture formed between them as partners to bid for the San Francisco newsrack contract.

In January 2001, Judge Charles Legge, to whom this case originally was assigned, denied summary judgment motions filed by defendants as well as plaintiff.¹ On November 21, 2001, partial summary judgment was granted for defendants on CSFs claim that it and Eller formed an oral joint venture to bid for the newsrack contract. The Court held that while in certain contexts contractors may reach an actionable agreement to be a team and to submit a bid together, here no such teaming agreement was formed as the parties merely formed an unenforceable "agreement to agree."

On March 13, 2002, partial summary judgment was granted for defendants on plaintiffs fiduciary-duty claims. Since the Court had already found that the parties had not entered into a joint venture, such an agreement could not have formed the basis of a fiduciary relationship. Furthermore, the order held that the parties were not fiduciaries by virtue of their written confidentiality agreement.

Trial commenced on September 23, 2002. Plaintiffs contract and fiduciaryduty claims having been eliminated on summary judgment, what remained for the jury were the issues of breach of the confidentiality agreement, fraud, and unfair competition. At the end of plaintiffs case, defendants moved for a directed verdict on all claims. A Rule 50 motion was granted as to defendant Clear Channel Communications only. Defendants renewed their motion for judgment as a matter of law at the close of their case. The motion was denied without prejudice.

By a special verdict returned on October 10, 2002, the jury found Eller liable for $9,000,000 on the fraud claim and $800,000 on the unfair-competition claim. The jury found that Eller had breached the written confidentiality agreement but awarded no damages. It further found that Eller had not misappropriated any trade secret. The jury found no liability for Adshel on plaintiffs unfair-competition claim.

In an extensive motion, Eller moved alternatively for judgment as a matter of law or for a new trial. CSI opposed the motion but failed to cite to any portion of the reporter's trial transcript to support the verdict, leaving the Court to fumble through its own notes of the trial for possible support for the various factual issues in dispute. On December 19, 2002, oral argument was heard. The Court asked plaintiffs counsel about the trial testimony regarding plaintiffs reliance on Eller's fraud. Plaintiffs counsel stated that he could not specifically detail any testimony because plaintiff had not ordered the trial transcripts. Eller's counsel volunteered to provide plaintiff with a copy of all trial transcripts at its own expense. The Court ordered supplemental briefing on the reliance issue. On January 9, 2003, the parties filed simultaneous briefs providing specific trial evidence on plaintiffs detrimental reliance. Both of Eller's motions are addressed together, as the same issues arise under both motions.

STATEMENT

CSFs fraud claim revolved around three meetings with Eller in San Francisco in 1998. Although the facts were disputed, this order must indulge all reasonable inferences in plaintiffs favor based on the evidence. At these meetings, Eller stated that it would bid with CSI and that it would not bid with Adshel. The latter issue arose because it was known that Eller's corporate parent was then trying to acquire Adshel. At a meeting held on March 31, 1998, CSI's President, Tom Trento, and Executive Vice President, David Hughes, again spoke with William Hooper, President of Eller's Northern California Region, about bidding together. Hooper said that Eller would not bid with Adshel in San Francisco, and that if Eller bid at all in San Francisco, it would be with CSI. In anticipation that they might form a team to bid, on April 2, 1998, CSI and Eller signed a written confidentiality agreement. The agreement allowed the parties to exchange confidential information during their preliminary negotiations but did not create any agency, partnership, or joint venture.²

On April 13, 1998, CSI executives again met with Hooper and George Broder, Eller's Public Affairs Manager, and discussed bidding together. On May 21, it was publicly announced that Adshel had been acquired by Eller's parent company, defendant Clear Channel Communications. Because of the acquisition, at a meeting on May 26, Trento of CSI asked Hooper and Broder of Eller if the CSI-Eller team was still going to go forward together. They answered yes. Significantly, however, Trento of CSI testified that at least up to this commitment, Eller had every right to walk away from its negotiations with CSI. The parties had not yet reached agreement on the contents of the bid nor on any joint-venture division of profits; nor did they ever do so.

In this time period, Hooper of Eller decided that he would not bid with CSI after all but would instead bid with Adshel. The parties dispute whether this change occurred shortly before or shortly after the May 26 reaffirmation. This order assumes that it took place before as plaintiff argues (despite strong evidence that it occurred shortly after May 26).

Hooper notified Trento on June 3. He told Trento that the decision was made by "others." Hooper later admitted, however, that in fact the decision to terminate Eller's relationship with CSI was solely his decision. Thereafter, CSI had to scramble to replace Eller in the lineup. CSI prepared a bid utilizing advertising companies Foster Media and Jamison Cawdry instead of Eller. Meanwhile, Eller did not return two copies of a draft bid CSI prepared on May 26 until June 12, in violation of the written confidentiality agreement. Ultimately, San Francisco awarded the bid to Adshel-Eller. The Adshel-EUer bid outscored the CSI-Foster-Jamison bid by...