Copart, Inc. v. Sparta Consulting, Inc.

• Citation: 339 F.Supp.3d 959
• Decision Date: 10 September 2018
• Docket Number: No. 2:14-cv-0046-KJM-CKD,2:14-cv-0046-KJM-CKD
• Parties: COPART, INC., Plaintiff, v. SPARTA CONSULTING, INC., KPIT Infosystems, Inc., and KPIT Technologies Ltd., Defendants. Sparta Consulting, Inc., Counterplaintiff, v. Copart, Inc., Counterdefendant.
• Court: U.S. District Court — Eastern District of California

339 F.Supp.3d 959

COPART, INC., Plaintiff,

v.SPARTA CONSULTING, INC., KPIT Infosystems, Inc., and KPIT Technologies Ltd., Defendants.

Sparta Consulting, Inc., Counterplaintiff,

v.Copart, Inc., Counterdefendant.

No. 2:14-cv-0046-KJM-CKD

United States District Court, E.D. California.

Signed September 10, 2018

Jason Sanjuro Takenouchi, Margaret Ziemianek, Andrew Robert James Muir, Kasowitz Benson Torres & Friedman, LLP, San Francisco, CA, Mark P. Ressler, Nicholas A. Rendino, R. Tali Epstein, Ronald R. Rossi, Kasowitz, Benson, Torres & Friedman LLP, New York, NY, Danielle Charniece Pierre, for Plaintiff.

Frederick A. Brown, Ian Thompson Long, Joseph R. Rose, Shailey Jain, Gibson Dunn and Crutcher LLP, Paul T. Llewellyn, Ryan Bodine Erickson, Marc R. Lewis, Rebecca Formanek Furman, Lewis & Llewellyn, LLP, San Francisco, CA, Blaine Hill Evanson, Gibson Dunn & Crutcher LLP, Los Angeles, CA, for Defendants.

ORDER

Kimberly J. Mueller, UNITED STATES DISTRICT JUDGE

In this order the court resolves four issues reserved by the parties or raised by the parties by motion following the jury verdict handed down on May 22, 2018. ECF No. 497. Specifically, the court addresses the following: a limitation of liability clause in a contract between Copart, Inc. and Sparta Consulting, Inc.; Copart's equitable unjust enrichment and California Unfair Competition Law (UCL) claims; the question of prejudgment interest to Sparta on its successful breach of the implied covenant of good faith and fair dealing claim against Copart; and dismissal of Copart's trade secrets misappropriation claim. The court provides its conclusions and reasoning below.

I. BACKGROUND

A. Trial

At trial, the court gave the jury Preliminary Instruction No. 2, which the court excerpts below:

In this action, the plaintiff and counterdefendant is Copart, Inc. The defendants in this case are Sparta Consulting, KPIT Infosystems, Inc. and KPIT Technologies Ltd. Sparta is also the counterplaintiff in this action.

Copart processes damaged or donated vehicles that it then sells for insurers or nonprofit organizations during online auctions. Sparta designs and builds custom business management software systems for companies. KPIT Infosystems is Sparta's parent company, and KPIT Technologies is Sparta's parent company's parent, or grandparent.

....

In October 2011, Copart hired Sparta to design a new business management software system to replace Copart's existing software system. Following the completion of the design, Copart hired Sparta to build the new system. Before Sparta finished building the new system, in September 2013, Copart terminated the contract with Sparta.

Copart and Sparta have sued each other for damages related to the project. Copart has also sued Sparta's parent company, KPIT Infosystems, and its parent company's parent, KPIT Technologies.

Copart contends that it is owed money by Sparta for fraud, professional negligence, breach of contract, breach of the implied covenant of good faith and fair dealing, violations of computer fraud statutes and other misconduct. Copart also contends that it is owed money by KPIT Infosystems and KPIT Technologies for misappropriation of trade secrets, violations of computer fraud statutes and other misconduct. Sparta and the KPIT entities deny Copart's claims.

Sparta claims that Copart has failed to pay money that it owes to Sparta for work performed on the new software system. Copart denies that it owes anything to Sparta.

Preliminary Instruction No. 2, ECF No. 398 at 3-4.

Copart and Sparta executed multiple contracts during their business relationship. One of these agreements was the Implementation Services Agreement (ISA). Trial Ex. JX-1 (JX-1¹ ). Under the parties' agreements, Sparta would complete numbered "milestones" by certain dates, Copart would approve those milestones and Copart would pay a fee to Sparta for completion. See ISA §§ 1.22-1.24, 3.1, 4.1-4.4, 9.1. The first four milestones comprised a design phase for the new business management software system. See JX-2 (Design Statement) at 25; D-1055. The remaining milestones, Milestones 5 through 15, comprised the build phrase for the software system. JX-3 (Build Statement or Realization Statement) at 33. Copart paid Sparta $11,364,460.88 for completing Milestones 1 through 7. Copart terminated Sparta "for convenience" on September 17, 2013 without paying any other milestone fees. ISA § 15.2; D-301-1. The parties dispute how much work Sparta completed before Copart terminated Sparta. See, e.g. , P-1041.

Before trial, the court ordered "the parties to meet and confer and provide, by the first day of trial, a joint annotated version of the relevant contracts, or their competing versions, showing contract terms the parties request be construed either by the court or the jury." Order on Mot. in Lim. and Mot. to Bifurcate, ECF No. 390 at 18, 51. The parties "exchanged terms that [they] believe[d] the court or the jury can interpret," and the court directed the parties to provide a joint binder reflecting which contract provisions the court should construe and which provisions the jury should interpret. April 23 Trial Tr. at 41:19-43:20, ECF No. 414. The court received this jointly annotated binder, listing Copart and defendants' positions as to multiple contract provisions. For ISA § 18, only defendants have presented a position: "This section should be interpreted by the [c]ourt, consistent with the [c]ourt's prior interpretation of this [s]ection as set forth in the Summary Judgment Order [ECF No. 264 at 16], and as set forth in [d]efendants' Trial Brief [ECF NO. 383 at 22-24]." Long Decl. Ex. A at 17, ECF No. 519-1.

ISA § 18 is a limitation of liability clause. Defendants had initially proposed an instruction on this clause, ECF No. 388 at 98-100 (defendants' proposed instruction and Copart's objections), but the parties later agreed the court would construe this clause following trial, instead of putting it before the jury. See May 11 Trial Tr. at 56:7-15, ECF No. 471; May 16 Trial Tr. at 244:25-248:4, ECF No. 482; see also May 17 Trial Tr. at 3:22-4:3, ECF No. 490 (confirming parties' agreement, that "as needed, the [c]ourt will conduct essentially a bench trial," making "any legal decisions" but "to the extent there are any factual decisions," the court also would make those).

When discussing Copart's unjust enrichment and UCL claims with the court, Copart at one point stated, "We'd like the jury to decide the facts and for those facts then to be binding on the [c]ourt with respect to its determination." May 11 Trial Tr. at 19:13-15. Defendants stated their view was that the court "should decide those claims" as "equitable" claims. Id. at 19:17-21. The court stated it had contemplated "the latter" view and would let the parties know if that changed. Id. at 19:22-25.

Regarding prejudgment interest for an award on contract claims, defendants asserted this interest was "an issue for the [c]ourt to decide." May 11 Trial Tr. at 57:9-10. The parties later jointly agreed to the court's deciding prejudgment interest, "[e]ven the fact of" prejudgment interest, "[e]ntirely." May 16 Trial Tr. at 225:7-12, 226:3-15.

During trial, Copart withdrew its trade secrets misappropriation claim. ECF No. 468 at 1 (discussing "Copart's withdrawal of its trade secret misappropriation [claim]," offer to stipulate to dismissal with prejudice and request that "this particular dispute be the focus of motion practice after trial, on a full record"). The parties agreed Copart's withdrawn trade secrets misappropriation claim "should not go to the jury" and that they would address whether the court should dismiss "with prejudice or without prejudice ... after trial." Id. at 5:21-24.

The court granted defendants' "motion for judgment as a matter of law" as to Copart's agency claims. May 14 Trial Tr. at 5:9-14, ECF No. 476.

After closing arguments, the court provided the jury its final instructions. See Final Jury Instructions (Instructions), ECF Nos. 485, 488 (correcting Instruction Nos. 45 and 52, and adding Instruction No. 51A).

The jury reached a verdict, finding Sparta liable for "fraud against Copart in the form of concealment" and awarding Copart $4.69 million. Verdict Form at 2, ECF No. 497. The jury also found Sparta committed professional negligence and awarded Copart $20.37 million. Id. at 4. But the jury found Copart "20%" responsible for this negligence. Id. The jury awarded Sparta $4.88 million for Copart's breach of the implied covenant of good faith and fair dealing based on Sparta's work performed and completed and unreimbursed expenses. Id. at 8; Instruction No. 52; ISA § 15.2

B. Post-Verdict Briefing and Hearing

After the verdict, Copart and defendants filed briefs addressing four issues: (1) the application of ISA § 18, the limitation of liability clause, to the jury verdict; (2) defendants' liability under Copart's unjust enrichment and UCL claims; (3) Sparta's entitlement to prejudgment interest for its successful breach of the implied covenant of good faith and fair dealing counterclaim; and (4) whether Copart's withdrawn trade secrets claim should be dismissed with prejudice. See ECF Nos. 503 (defendants' brief), 505 (Copart's brief). The court held a hearing on these issues on July 13, 2018. ECF Nos. 510, 515. After the hearing, Copart and defendants submitted supplemental briefs, then final reply briefs. ECF Nos. 516, 518, 520, 521.

The court resolves the four issues below.

II. LEGAL STANDARD

The Seventh Amendment provides that "no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law." U.S. Const. amend. VII. According to the Ninth Circuit, "it would be a violation of the Seventh Amendment right to jury trial for the court to disregard a jury's finding of fact." Acosta v. City of Costa Mesa , 718 F.3d 800, 828 (9th Cir. 2013) (citing Floyd v. Laws , 929 F.2d 1390, 1397 (9th Cir. 1991) ). "Thus, in a case where...