Diamondstar Entm't Holdings, LLC v. THH, LLC

• Docket Number: Case No. 8:21-cv-01150-KES
• Decision Date: 15 November 2022
• Citation: 641 F.Supp.3d 849
• Parties: DIAMONDSTAR ENTERTAINMENT HOLDINGS, LLC, Plaintiff, v. THH, LLC, et al., Defendants.
• Court: U.S. District Court — Central District of California

641 F.Supp.3d 849

DIAMONDSTAR ENTERTAINMENT HOLDINGS, LLC, Plaintiff, v. THH, LLC, et al., Defendants.

Case No. 8:21-cv-01150-KES

United States District Court, C.D. California

Signed November 15, 2022

Manuel A. Medrano, Rimon P.C., Los Angeles, CA, Agnes Markarian Sullivan, Goodman Sullivan Law Group, Inc., Sunland, CA, Brian T. Hafter, Rimon PC, San Francisco, CA, for Plaintiff.

Christopher John Hoo, Michael R. Perry, The Perry Law Firm, Lake Forest, CA, for DefendantsTHH LLC, Rick Zielomski.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

KAREN E. SCOTT, UNITED STATES MAGISTRATE JUDGE

I.INTRODUCTION

In mid-2020, during the height of the COVID-19 pandemic, Diamondstar Entertainment Holdings, LLC("Plaintiff") purchased disinfectant wipes from THH, LLC("THH"), which Plaintiff planned to resell to its own customers.Plaintiff claims that the wipes were unusable, and it brings claims for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of express and implied warranties, unfair competition under California Business and Professions Code section 17220, and negligent interference with contractual relationships.(Dkt. 62at 3-4[Final Pretrial Conference Order].)¹

Plaintiff filed this action in state court against Defendant THH and its owner, Rick Zielomski("Zielomski")(collectively, "Defendants").(Dkt. 1-3.)Defendants later removed the action to this Court based on diversity jurisdiction.(Dkt. 1, 10);see generally28 U.S.C. § 1332.The parties consented to the jurisdiction of the undersigned Magistrate Judge.(Dkt. 6);see generally28 U.S.C. § 636(c)(1).

The case proceeded through discovery, and no party moved for summary judgment.In preparation for trial, the parties stipulated to certain facts, which the Court accepted and recited in its Final Pretrial Conference Order.(Dkt. 62 at 2-3 ¶ 5.)A bench trial was held before the undersigned on August 2, 3, and 4, 2022.(Dkt. 64-66[minutes], Dkt. 76-78[transcripts].)On September 13, 2022, the parties submitted written briefs in lieu of closing argument.(Dkt. 82["Defendants' Closing Brief"], Dkt. 83["Plaintiff's Closing Brief"].)Accordingly, the case is now ripe for decision.

After considering the evidence, briefs, and arguments of counsel, the Court makes the following findings of fact and conclusions of law.²Plaintiff is entitled to judgment against Defendant THH on the claims for breach of contract and breach of the implied warranty of merchantability.However, the only reasonably certain damages that Plaintiff has proven by a preponderance of the evidence are the purchase price ($42,568) and cover damages ($7,000).Plaintiff has failed to show it is entitled to relief on any of its other claims.

II.UNDISPUTED FACTS

In May 2020, Plaintiff began negotiating with Defendant Zielomski, owner of Defendant THH, for the purchase of disinfectant wipes.(Stip. Facts / Dkt. 62at 3.)Plaintiff's owner, Aric Gastwirth, was introduced to Defendant Zielomski by a man named Dominic Moscato, who "facilitated the purchase" and was paid a commission by Defendant Zielomski.(Trial Day 1at 134-36, 140[Moscato's testimony];see alsoTrial Day 1at 17-18[Gastwirth's testimony].)

Defendant Zielomski provided Plaintiff with a Safety Data Sheet ("SDS") for the disinfectant wipes stating that the product was safe.(Stip. Facts / Dkt. 62at 2.)The SDS had Defendant Zielomski's name on it.(Id.)³

The wipes were not manufactured by Defendant THH; Defendant THH purchased them from another company called Luca's Dog Food, which was owned by Michael Balano.(TrialEx. 2[purchase order between Luca's Dog Food and Defendant THH];Trial Day 2at 48-49[Zielomski testimony];Trial Day 3at 6-7[Balano testimony].)

On May 22, 2020, Plaintiff and Defendant THH entered into a contract in the form of a purchase order.(Stip. Facts / Dkt. 62at 2;TrialEx. 1[purchase order between Plaintiff and Defendant THH].)On May 23, 2020, Defendant THH sent Plaintiff an invoice for 10,016 thirty-count containers of Outlaw Brand Disinfectant Wipes for a price of $4.25 each.(Stip. Facts / Dkt. 62at 2;TrialEx. 3[the invoice].)Plaintiff paid a total of $42,568 for the 10,016 containers.(Stip. Facts / Dkt. 62at 2.)

Plaintiff intended to buy the disinfectant wipes to sell to a customer, Safeguard.(Id.)Safeguard was then to provide the disinfectant wipes to Haas Automation, Inc. and KB Home.(Id.)Though Safeguard was a customer of Plaintiff, this was a test order for Haas Automation, Inc. and KB Home, who intended to continue ordering from Plaintiff through Safeguard if they were satisfied with the products.(Id.)

Pursuant to the contract between Plaintiff and Defendant THH, the 10,016 containers of wipes were to be shipped to Ft. Lauderdale, Florida, on May 27 or May 28, 2020, in care of Plaintiff, for its customers.(Id.)They were shipped to a warehouse in Florida that was operated by a warehouse and distribution company called J.M. Field.(Trial Day 1at 21-22[Gastwirth's testimony].)

Once the wipes were delivered, Plaintiff discovered, through its customers, that several of the 10,016 cases of wipes received from Defendants contained mold and were unusable.(Stip. Facts / Dkt. 62at 3.)Plaintiff requested a full refund of the entire shipment.(Id.)Defendants refused to respond to Plaintiff's demands to rescind the agreement and return the $42,568 paid by Plaintiff for the 10,016 cases of Outlaw Brand Disinfectant Wipes.(Id.)Defendants refused because they claimed they were not manufacturers of the wipes, but only brokered the purchase.(Id.)

Because the disinfectant wipes purchased by Plaintiff for its customers did not meet specifications and were moldy and unusable, Plaintiff was forced to pay its customers an additional $7,000, which was the additional amount its customers (through Safeguard) had to pay in order to purchase quality disinfectant wipes.(Id.)

III.FINDINGS OF FACT AND CONCLUSIONS OF LAW

This action is in federal court based on diversity jurisdiction under 28 U.S.C. § 1332.(Dkt. 10[amended notice of removal].)The parties' contract, a one-page purchase order, does not contain a choice-of-law provision.(TrialEx. 1.)This Court applies the substantive law of the forum state of California, including its choice-of-law rules.See generallyMuldoon v. Tropitone Furniture Co., 1 F.3d 964, 966(9th Cir.1993)(citingErie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188(1938)).The parties agree that California law governs the interpretation of the contract's terms.See generallyCal. Civ. Code § 1646("A contract is to be interpreted according to the law and usage of the place where it is to be performed; or, if it does not indicate a place of performance, according to the law and usage of the place where it is made.");Madera Grp., LLC v. Mitsui Sumitomo Ins. USA, Inc., 545 F. Supp. 3d 820, 831(C.D. Cal.2021).

Neither party's briefing explicitly discusses whether the contract is governed by California common law or the UCC as adopted in California.(See, e.g., Pl. Closing Br.at 5-6[citing case law discussing both types of contracts].)However, the UCC and common law do not appear to differ materially as to the issues and arguments raised by the parties.

A.Breach of Contract and the Implied Warranty of Merchantability.

1.Applicable Law.

a. Breach of Contract.

To prevail on a breach of contract claim under California law, a plaintiff must prove: (1) the existence of a contract; (2)plaintiff's performance or excuse for non-performance; (3)defendant's breach; and (4) damages to plaintiff as a result of the breach.CDF Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239, 70 Cal. Rptr.3d 667(2008).Contracts for the sale of goods are governed by the California Uniform Commercial Code.Cal. Com. Code §§ 2102,2106."Goods . . . are 'conforming' or conform to the contract when they are in accordance with the obligations under the contract."Cal. Com. Code § 2106(2).

b. Implied Warranty of Merchantability.

"[A] warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind."Cal. Com. Code § 2314(1).To be "merchantable," goods must be, among other things, "fit for the ordinary purposes for which such goods are used."Cal. Com. Code § 2314(2)(b).Thus, this "implied warranty 'provides for a minimum level of quality' " and a breach "occurs if the product lacks 'even the most basic degree of fitness for ordinary use.' "Birdsong v. Apple, Inc., 590 F.3d 955, 958(9th Cir.2009)(quotingAm. Suzuki Motor Corp. v. Superior Court, 37 Cal. App. 4th 1291, 1296, 44 Cal.Rptr.2d 526(1995)andMocek v. Alfa Leisure, Inc., 114 Cal. App. 4th 402, 406, 7 Cal.Rptr.3d 546(2003))."Under California Commercial Code section 2314, . . . a plaintiff asserting breach of [the implied] warranty [of merchantability] claims must stand in vertical contractual privity with the defendant."Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1023(9th Cir.2008);see alsoIn re ConAgra Foods, Inc., 90 F. Supp. 3d 919, 986(C.D. Cal.2015)(noting that "the exception to privity available for breach of express warranty claims is not available for breach of implied warranty claims"), aff'd sub nom.Briseno v. ConAgra Foods, Inc., 674 F. App'x 654(9th Cir.2017)and844 F.3d 1121(9th Cir.2017).

"A buyer who is damaged by a breach of implied warranty has two possible measures of those damages: one where the buyer has rightfully rejected or 'justifiably revoked acceptance' of the goods . . . , and one where the buyer has accepted the goods . . . ."Simgel Co. v. Jaguar Land Rover N. Am., LLC, 55 Cal. App. 5th 305, 315-16, 269 Cal.Rptr.3d 364(2020)(citingCal. Com. Code §§ 2711,2714)."A buyer who has accepted goods may revoke acceptance of a commercial unit 'whose nonconformity substantially impairs its value to him.' "Id.(quotingCal. Com. Code § 2608(1)).

If the...