Southern Cal. Stroke Rehab. Associates Inc. v. Nautilus Inc.

• Decision Date: 24 March 2011
• Docket Number: Case No. 09–CV–744 JLS (AJB).
• Citation: 782 F.Supp.2d 1096
• Court: U.S. District Court — Southern District of California
• Parties: SOUTHERN CALIFORNIA STROKE REHABILITATION ASSOCIATES, INC., Plaintiff,v.NAUTILUS, INC., Defendant.

782 F.Supp.2d 1096

SOUTHERN CALIFORNIA STROKE REHABILITATION ASSOCIATES, INC., Plaintiff,

v.NAUTILUS, INC., Defendant.

Case No. 09–CV–744 JLS (AJB).

United States District Court, S.D. California.

March 24, 2011.

Eric Berg, Brownstein Hyatt Farber Schreck LLP, Santa Barbara, CA, G. Cresswell Templeton, III, Stephen J. Tomasulo, Hill Farrer and Burrill LLP, Los Angeles, CA, for Plaintiff.Patrick J. Kearns, Robert W. Harrison, Wilson, Elser, Moskowitz, Edelman & Dicker, San Diego, CA, for Defendant.

ORDER: (1) GRANTING DEFENDANT'S REQUEST FOR JUDICIAL NOTICE; (2) DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT; (3) GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

JANIS L. SAMMARTINO, District Judge.

Presently before the Court are the parties' cross motions for summary judgment. (Doc. Nos. 94, 100.) Also before the Court are Defendant's request for judicial notice (Doc. No. 94–7(RJN)), and the parties' respective oppositions and replies (Doc. Nos. 99 (Pl.'s Opp'n), 104 (Def.'s Opp'n), 103 (Def.'s Reply), 105 (Pl.'s Reply)). Having considered the parties' arguments and the law, the Court GRANTS Defendant's request for judicial notice, DENIES Defendant's motion for summary judgment, and GRANTS IN PART and DENIES IN PART Plaintiff's cross motion.

BACKGROUND

This lawsuit is the second action arising out of a more than ten-year-old dispute over a contract for the purchase of medical grade exercise equipment. Four district judges, a host of neutral mediators, a special master, and two Ninth Circuit panels have had the pleasure of making the parties' acquaintances. Although this matter's tortuous litigation history could fill volumes—as the parties' briefing demonstrates—the following represents the Court's best effort to briefly set forth the relevant factual and procedural background.

In 1998 and 1999, Ponani Sukumar ordered “custom designed, medical grade [exercise] equipment designed for stroke rehabilitation purposes” from Defendant Nautilus, Inc. (Nautilus or Defendant).¹ (Doc. No. 99–10 (Sukumar Decl.) ¶¶ 4–5; Doc. No. 99–4 (Smith Decl.) ¶ 5.) Jeff Turner and Frank Smith negotiated the terms of the sale on behalf of Nautilus. (Sukumar Decl. ¶ 5; Smith Decl. ¶ 5.) Mr. Sukumar paid extra for “high end powder coating” on the machines in lieu of an ordinary paint job. (Sukumar Decl. ¶ 7; Smith Decl. ¶ 6.) Mr. Sukumar believed that the powder coating would protect the underlying metal frame against degradation, including rust and corrosion. (Sukumar Decl. ¶ 7.) Mr. Sukumar told Mr. Smith and Mr. Turner that the availability of powder coating and a warranty covering defects in powder coating influenced his decision to purchase the equipment from Nautilus. (Sukumar Decl. ¶¶ 6–7, 9–10; Smith Decl. ¶¶ 6–7.)

In approximately March of 1999, Nautilus advised Mr. Sukumar that the equipment he had ordered was ready. (Sukumar Decl. ¶ 11; Smith Decl. ¶ 13.) Mr. Sukumar reviewed photographs and videos of the machines and determined that there were “significant problems” with the machines. (Sukumar Decl. ¶ 11; Smith Decl. ¶ 13.) Mr. Sukumar asked Nautilus to remedy the problems before delivery. (Sukumar Decl. ¶ 11; Smith Decl. ¶ 13.) Nautilus attempted to do so, but it could not conform the machines to the contract specifications. (Sukumar Decl. ¶ 11; Smith Decl. ¶ 13.)

On February 11, 2000, Mr. Sukumar filed in the United States District Court for the Southern District of California a verified complaint against Nautilus for breach of contract, specific performance, and injunctive relief (the Direct Focus action).² (Sukumar Decl. ¶ 11; Doc. Nos. 99–9 to 99–14 (Def.'s Notice of Lodgment (NOL)) Ex. 1.) Magistrate Judge Anthony J. Battaglia brokered a settlement between the parties, pursuant to which Nautilus would deliver the equipment to Mr. Sukumar for inspection by retired Magistrate Judge Harry R. McCue. (Sukumar Decl. ¶ 13; Def.'s NOL Ex. 2.) ³

In approximately October 2001, Nautilus delivered the equipment for inspection by Judge McCue and Mr. Sukumar. (Sukumar Decl. ¶ 13.) Nautilus repaired some of the defects Mr. Sukumar identified on site—including cosmetic defects in the powder coating on the machines—and returned some of the machines to its factory for further repairs. ( Id.; Def.'s NOL Ex. 2, at 1; Def.'s NOL Ex. 3, at 2.) ⁴ However, Judge McCue concluded that “Nautilus [had] complied with the contract with respect to the machines on site” and recommended that Mr. Sukumar be directed to pay the balance owing to Nautilus for the equipment. (Def.'s NOL Ex. 2, at 2; Def.'s NOL Ex. 3, at 3.) Judge McCue noted that Mr. Sukumar could address any remaining discrepancies “pursuant to any warranty which may be applicable.” ( Id.)

Thereafter, Nautilus delivered additional equipment to Mr. Sukumar and re-delivered the machines it had returned to its factory. (Sukumar Decl. ¶ 14; Def.'s NOL Ex. 3, at 3.) Mr. Sukumar rejected the machines. (Sukumar Decl. ¶ 14.) After meeting with the parties and reviewing Mr. Sukumar's list of complaints (Def.'s NOL Ex. 3, at 4), Judge McCue concluded that “[t]he only satisfactory solution to [the] dispute [was] to rescind the contract and restore the parties to the status quo ante” ( id. at 7).

On August 7, 2002, in light of Judge McCue's findings, Judge Battaglia concluded that the settlement process had reached an impasse and that further litigation was necessary to adjudicate the parties' positions. (Def.'s NOL Ex. 5, at 2.) Judge Battaglia ordered that the equipment temporarily remain in Mr. Sukumar's possession to allow Mr. Sukumar “time to complete an expert inspection or analysis needed for trial.” ( Id.) On January 7, 2003, Judge Battaglia ordered Mr. Sukumar to return the equipment to Nautilus. (Sukumar Decl. ¶ 15.)

On April 1, 2003, Mr. Sukumar amended his complaint in the Direct Focus action. (Def.'s NOL Ex. 6.) The amended complaint alleged the same causes of action as the original complaint and added claims for fraud and violation of California Business and Professions Code section 17200. ( Id.; see also Def.'s NOL Ex. 1.) With the exception of the claims for breach of contract, fraud, and specific performance, all of the claims were disposed of before trial. (Def.'s NOL Ex. 7, at Ex. A, at 1–2.) After a four-day bench trial, District Judge Larry Alan Burns granted judgment in Mr. Sukumar's favor on his breach of contract and specific performance claims. ( Id. at 1; see also Def.'s NOL Ex. 7 (showing judgment entered December 8, 2004).) Judge Burns concluded that Nautilus breached its contract with Mr. Sukumar by, among other things, failing to provide Mr. Sukumar with certain labeling and features he had bargained for. (Def.'s NOL Ex. 7, at Ex. A, at 5–6.) Regarding Mr. Sukumar's complaints about cosmetic defects, however, Judge Burns concluded:

Nautilus is not in breach for having initially supplied machines with some pinholes in weld seams, weld spatter, variable size decals, one machine with a rusty bar, and one machine with latent rust requiring disassembly, sand blasting, and re-painting, and the like. Minor imperfections do not render the equipment unfit for its intended purposes. Nautilus cured or committed to cure most of the minor quality control items, and shall do so.

( Id. at 6.) Judge Burns ordered Nautilus to conform the equipment to the contract specifications and deliver it to Mr. Sukumar by November 29, 2004, later extended to December 31, 2004. ( Id.; Def.'s NOL Ex. 8, at 1.) The judgment gave Mr. Sukumar fourteen days after delivery to inspect and accept the machines. (Def.'s NOL Ex. 7, at Ex. A, at 6.)

Nautilus re-delivered equipment on December 30, 2004.⁵ (Def.'s NOL Ex. 8, at 2.) On January 18, 2005, Mr. Sukumar filed a lengthy notice of conditions constituting material breach. (Def.'s NOL Ex. 8.) Mr. Sukumar's notice contained numerous complaints regarding the condition of the equipment's powder coating. ( See id. at 4–6, 8–9, 11, 14, 17, 20.) Judge Burns ultimately rejected Mr. Sukumar's notice as untimely and denied him post-judgment relief. ( See Def.'s NOL Ex. 9.) Mr. Sukumar timely appealed.⁶

The Ninth Circuit reversed Judge Burns's ruling that Mr. Sukumar's failure to timely file his notice deprived the court of jurisdiction to consider it and remanded for consideration of Mr. Sukumar's motion to enforce the judgment under Federal Rule of Civil Procedure 70. Sukumar v. Direct Focus Inc., 224 Fed.Appx. 556, 560 (9th Cir.2007). The court suggested that, on remand, Judge Burns appoint a special master “to work out a recommended final order.” Id.

As the Ninth Circuit suggested, Judge Burns appointed retired Justice Howard B. Wiener to serve as a special master on remand. (Def.'s NOL Ex. 13.) Justice Wiener received written materials from both parties and established a website that allowed Mr. Sukumar to itemize the defects on each machine and Nautilus to respond. (Def.'s NOL Ex. 14, at 1.) Among other issues, Mr. Sukumar complained of “defective fit and finish including seriously compromised powder coating protection provided on all delivered equipment.” ( Id. at 2.) After reviewing the written materials and the parties' submissions to the website, Justice Wiener conducted an on-site inspection of the equipment with the parties, their counsel, and Mr. Sukumar's experts. ( Id. at 3.)

On March 8, 2008, Justice Wiener submitted his findings. ( See Def.'s NOL Ex. 14.) Relevant here, Mr. Sukumar's expert witness, Michael Cravens, opined that “the barrier protective value of the applied powder coated finish to the Nautilus fitness equipment [was] degrading rapidly” for a variety of reasons. ( Id. at 8.) However, Justice Wiener generally “found each machine to be in good working condition with no defects that could reasonably and objectively be considered material.” ( Id. at 9.) Justice Wiener rejected Mr. Cravens's claim that the alleged powder coating defects would reduce the useful life of the equipment. ( Id. (“I...