Prim LLC v. Pace-O-Matic, Inc.

• Decision Date: 23 April 2013
• Docket Number: CIVIL NO. 10-617 SOM/KSC
• Parties: PRIM LLC, ET AL., Plaintiffs, v. PACE-O-MATIC, INC., Defendant.
• Court: U.S. District Court — District of Hawaii

PRIM LLC, ET AL., Plaintiffs,

v.PACE-O-MATIC, INC., Defendant.

CIVIL NO. 10-617 SOM/KSC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII

DATED: April 23, 2013

ORDER DENYING

DEFENDANT/COUNTERCLAIMANT'S

MOTION FOR PARTIAL SUMMARY

JUDGMENT AS TO COUNTS V AND

VIII

ORDER DENYING DEFENDANT/COUNTER-CLAIMANT'S MOTION

FOR PARTIAL SUMMARY JUDGMENT AS TO COUNTS V AND VIII

I. INTRODUCTION.

Plaintiffs Prim LLC and Prim Ltd. (collectively, "Prim") contracted to purchase and distribute electronic games such as "Island Fruit" from Defendant/Counterclaimant Pace-o-Matic ("Pace"). After Pace terminated the exclusivity provision of Prim's contract, Prim brought suit. Currently before the court is Pace's motion for partial summary judgment on Counts V and VIII. The court concludes that factual disputes preclude the granting of Pace's motion.

II. STATEMENT OF FACTS.

A. Facts Relevant to Count V (Breach of Express Warranty).

On November 7, 2008, Pace and Prim entered into an agreement regarding an exclusive distributorship arrangement for certain "amusement devices." Agreement Letter, ECF No. 237-5,PageID #3042. While the agreement was in effect, Prim purchased electronic "Island Fruit" games and "fills" from Pace. Second Amended Compl. ("SAC") ¶ 2.

On October 18, 2010, Pace sent Prim a letter alleging that Prim was in default and terminating the exclusivity portion of the agreement between Pace and Prim. Pace's letter of October 28, 2010, ECF No. 202-4, PageID # 2459. On October 22, 2010, Prim filed the instant lawsuit. See ECF No. 1.

On October 26, 2010, the court expressed concern that "Island Fruit," one of the "amusement machines" that Pace sold to Prim, might qualify as an illegal gambling machine under Hawaii Revised Statutes. ECF No. 22. On March 2, 2011, Pace sent Prim a letter saying that, "given the concerns that Judge Susan Mollway expressed about the legality of the Island Fruit game," Pace "is withdrawing the sale of its skill-based amusement products from the State of Hawaii." Pace's letter of March 2, 2011, ECF No. 202-2. Pace continued: "To the extent Prim disagrees with Pace's conclusion and wants to continue operating the Island Fruit game in Hawaii at its own risk, Pace is willing to provide Prim with an unlimited fill for its existing games in Hawaii, at cost." Id.

On August 30, 2011, Prim filed its Second Amended Complaint ("SAC"). ECF No. 79. Prim asserted the following eight claims: (1) breach of contract; (2) tortious interferencewith prospective business advantage; (3) unfair methods of competition in violation of section 480-2 of Hawaii Revised Statutes; (4) violation of the Hawaii franchise law under chapter 482(E) of Hawaii Revised Statutes; (5) breach of express warranty; (6) breach of the implied warranty of merchantability; (7) breach of the implied warranty of fitness for a particular purpose; and (8) indemnity. Id.

The breach of express warranty claim (Count V) alleges that Pace expressly warranted that the Island Fruit games were legal.

B. Facts Relevant to Count VIII (Indemnity).

Before the Agreement Letter between Pace and Prim was executed, Nickels & Dimes had been purchasing amusement games and fills directly from Pace. Nickels & Dimes Compl. ¶ 10, ECF No. 256-6.¹ In 2009, Pace informed Nickels & Dimes that Fun Factory, an entity related to Prim, would be the new supplier of fills for Island Fruit. Id. ¶ 14.

In October 2009, a Nickels & Dimes competitor reportedly operated an amusement machine similar to Island Fruit with a "Max Play Cost" higher than the "Max Play Cost" on Nickels & Dimes' Island Fruit machines. Id. ¶ 16. In response, Nickels & Dimes set its "Max Play Cost" at $4. Id. Nickels & Dimes alsoalleges that a Fun Factory employee subsequently lowered the "Max Play Cost" for Nickels & Dimes' Island Fruit games and refused to raise that amount back to $4. Id. ¶ 17. Nickels & Dimes further alleges that the lower "Max Play Cost" increased the price Nickels & Dimes had to pay for fills. Id. ¶ 19. Nickels & Dimes also alleges that Fun Factory required the "Max Play Cost" to be set at $1 for new purchases of fills at another Nickels & Dimes location. Id. ¶ 21.

Nickels & Dimes sued both Pace and Fun Factory for violating the Sherman Act and asserted claims for unfair and deceptive trade practices and injunctive relief. Id. 25-36. Fun Factory filed an Amended Answer and Cross-Claim, which included a claim for indemnification against Pace. N&D Matter Cross-Claim, ¶¶ 7-12, ECF No. 256-7.

In its Cross-Claim, Fun Factory alleged that "Pace agreed to indemnify and hold companies, including Fun Factory, harmless from legal actions resulting from the Island Fruit electronic games." Id. Fun Factory also alleged that it "lodged a timely demand to Pace for indemnification of costs, including attorneys fees, arising form this litigation." Id. ¶ 10. Fun Factory further alleged, "In response, Pace agreed that Pace was obligated to indemnify and hold Fun Factory harmless from all claims arising from this lawsuit including the payment of attorney's fees." Id. ¶ 11.

Pace negotiated a settlement with Nickels & Dimes that included the dismissal of all claims against Pace and Fun Factory. Brown Decl. ¶ 3, ECF No. 256-1. On May 18, 2011, during a status conference in the N&D Matter, the parties stipulated to (1) dismissal of the N&D Matter; and (2) consolidation of Fun Factory's remaining indemnification claim against Pace with this case. Id. ¶¶ 4-5.

In this case, Fun Factory's claim for indemnification alleges:

120. On or about February 19, 2010, Nickels and Dimes ("N&D") filed a complaint alleging that cross claimant Fun Factory, committed violations of the Sherman Act and used unfair trade practices while purportedly acting in concert with Pace. These allegations arise from the operation of Island Fruit electronic games.

121. Fun Factory is and has incurred attorney's fees, court costs, investigative costs and other costs in connection with defending said complaint, the exact amount of which cannot be known until the end of the case.

122. Fun Factory lodged a timely demand to Pace for indemnification of costs, including attorney's fees, arising from this litigation.

123. In response, Pace agreed that Pace was obligated to indemnify and hold Fun Factory harmless from all claims arising from this lawsuit including the payment of attorneys' fees.

124. Fun Factory is entitled to complete indemnification by Pace for any sum or sums for which it may be adjudicated liable to plaintiffs, together with costs of defense, costs of suit, and reasonable attorney's fees.

SAC ¶¶ 120-24.

Fun Factory offers two main pieces of evidence in support of its allegations. First, Fun Factory points to an email exchange between Linda Fernandez, Fun Factory's then-President, and Ron Carrara, Pace's then-Vice President of Sales and Marketing (the "Email Conversation"). Fernandez's portion of the Email Conversation said:

As to this lawsuit from Tilt, we look to you to deal with the situation and hold us harmless. Pace brought the trouble to us due to Dan Trueblood's mistake. There would be no issue had the game been set up as agreed upon. Please advise.

The publicity will not be a good thing for anyone, them included. Talk about throwing the baby out with bath water.

ECF No. 304-5. Carrara replied: "I agree. Back to you later." Id.

Fun Factory also refers the court to a letter dated August 17, 2010, sent by its lawyers to Pace. The letter asserted that Pace had "agreed to defend and indemnify our client companies and their personnel" with respect to the N&D Matter. See Letter re: N&D Matter, ECF No. 280-11. The letter stated:

You have given us assurances that all attorneys' fees would be paid by Pace-O-Matic, Inc. and that our client companies and their personnel would be held harmless. We are concerned that you may attempt to renege on your promise. Please accept this letter as a continuation of our clients' demand to indemnify, defend and hold Fun Factory, Inc. and 50th State Coin-Op harmless from and against any and all liabilities, costs, damages, and expenses (including reasonable attorneys' fees) incurred by Fun Factory, Inc. and/or 50th State Coin-Op in the above-referenced lawsuit.

To confirm your intent to live up to your promise, before the close of business on Friday of this week, please let us know what plans you have in place to:

1) pay attorneys' fees and costs incurred by my clients in defense of this suit; and

2) pay any settlement or judgment arising out of this suit.

Id.

In summary, the present motion seeks summary judgment with respect to two claims. Count V, which is pled in the alternative to Counts I through IV, asserts a claim for breach of express warranty. See SAC ¶¶ 96-103. Count VIII asserts a claim for indemnity. See id. at ¶¶ 119-24.

III. SUMMARY JUDGMENT STANDARD.

Summary judgment shall be granted when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). One of the principal purposes ofsummary judgment is to identify and dispose of factually unsupported claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). Accordingly, "[o]nly admissible evidence may be considered in deciding a motion for summary judgment." Miller v. Glenn Miller Prods., Inc., 454 F.3d 975, 988 (9th Cir. 2006). Summary judgment must be granted against a party that fails to demonstrate facts to establish what will be an essential element at trial. See Celotex, 477 U.S. at 323. A moving party has both the initial burden of production and the ultimate burden of persuasion on a motion for summary judgment. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000). The burden initially falls on the moving party to identify for the court "those portions of the materials on file that it believes demonstrate the absence of any genuine issue...