1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 Case No. 8:20-cv-01277 COMPLETE MEDICAL SALES, 11 FINDINGS OF FACT AND INC., CONCLUSIONS OF LAW 12
13 Plaintiff/Counter- 14 Defendant,
15 v. 16 GENORAY AMERICA INC., 17
18 Defendant/Counter- Claimant. 19
20 21 This case principally involves the alleged breach of contract between a 22 manufacturer of medical diagnostic equipment, Defendant and Counter-Complainant 23 Genoray America, Inc. (Genoray), and its former distributor, Plaintiff and Counter- 24 Defendant Complete Medical Sales, Inc. (CMS). Genoray has brought a counterclaim 25 for breach of contract. The Court held a bench trial in this case. After evaluating the 26 evidence at trial and weighing credibility, the Court issues the findings of fact and 27 conclusions of law as set forth below. 28 1 CMS COMPLAINT 2 1. Genoray is a manufacturer of a C-Arm, a medical imaging device, 3 including the Zen-7000. CMS is a medical sales company. 4 2. On July 25, 2013, Genoray and CMS entered into a distribution 5 agreement that gave CMS the exclusive right to distribute the Zen-7000 in the United 6 States for a five-year term (Agreement). At the end of the original term, the parties 7 agreed that the Agreement would be “reviewed” to consider an additional five-year 8 term. In ruling on Genoray’s motion for partial summary judgment, this Court 9 rejected CMS’s claim that the Agreement was subject to “automatic renewal.” Dkt. 10 No. 78, at 6-7. The Agreement also allowed either party to terminate the Agreement 11 in the event of a default that was not cured within 90 days of notice of the default. 12 3. The Agreement has two attachments, the letter of intent that preceded the 13 Agreement and the dealer policy. The dealer policy specifies that all Genoray 14 products are covered under a standard one-year limited warranty. “According to this 15 policy, Genoray will provide parts and Dealer will provide labor to any customers 16 who’s having trouble within [the] initial warranty period. Genoray will make effort to 17 send all needed parts to Dealer via express shipping.” Ex. B to Agreement. “Dealer is 18 responsible for collecting, repairing, and returning defective parts.” 19 4. The Agreement also contains an option provision that granted CMS “a 20 first option to be the exclusive distributor for any subsequent generation or iterations 21 of the [Zen-7000],” subject to certain terms and conditions. Genoray subsequently 22 developed a C-arm that it called the “Oscar 15.” 23 5. After entering into the Agreement, the parties had a cooperative business 24 relationship for most of the five-year term and attempted to amicably resolve issues 25 that arose. Genoray periodically experienced issues with the Zen-7000 and sought to 26 address them; and CMS regularly worked with Genoray to resolve the resulting 27 problems to satisfy the affected customers. CMS experienced issues with meeting the 28 sales volume commitments under the Agreement; and Genoray regularly worked with 1 CMS to adjust those commitments or make other accommodations to allow for 2 continued exclusivity. 3 6. In this lawsuit, CMS claims that Genoray breached the product warranty 4 on 38 sales dating back to 2013. K. Orlando Decl. ¶¶ 153-419. CMS contends that 5 these warranty breaches “crushed [its] business and irreparably harmed its reputation, 6 eventually causing CMS to go out of business.” K. Orlando Decl. ¶ 451. For this 7 claim of business destruction, CMS seeks: (a) unpaid wages for Tony and Kristin 8 Orlando for the years 2018, 2019, and 2020 in the total amount of $809,237.96; (b) 9 unreimbursed loans from the Orlandos to CMS in the amount of $1,312,244.62; (c) 10 shipping and freight costs incurred by CMS between November 10, 2017 and April 9, 11 2020 in the amount of $175,323.94; (d) automobile expenses incurred by CMS 12 between November 12, 2017 and March 30, 2020 in the amount of $10,960.40 and 13 25% of the automobile expenses incurred by CMS between January 2013 through 14 December 2017 in the amount of $51,744.79, for a total of $62,705.19; (e) employee 15 training costs for the period of June 6, 2018 through June 24, 2019 in the amount of 16 $11,747.83; (f) commissions and fees paid to CMS salespersons C-Arm sales between 17 January 5, 2017 and May 26, 2020 in the amount of $309,762.26; (g) advertising and 18 marketing expenses between December 13, 2017 and March 19, 2020 in the amount 19 of $6,736.17, 25% and advertising and marketing expenses between January 13, 2013 20 and December 2017 in the amount of $118,619.91; and (h) travel expenses between 21 January 2013 and December 2017 in the amount of $92,088.02; and (i) parts 22 warranties paid to Genoray in the amount of $460,000 on the theory that Genoray “did 23 not honor the vast majority of the warranties.” K. Orlando Decl. ¶¶ 453-85. 24 7. In claiming more than $3.4 million in business expenses over a period of 25 several years, CMS contends that it incurred these costs as a result of the breach of 26 warranty on all 38 sales. CMS seeks consequential damages on a theory that requires 27 a finding of breach of warranty with respect to each sale at issue. As its counsel 28 conceded during closing argument, CMS did not provide damage evidence on a sale- 1 by-sale basis, and there is no way for the Court to determine damages arising out of 2 each purported breach.1 3 8. While there were admitted problems with the product at times, CMS has 4 not demonstrated a breach with respect to all these sales. Genoray disputes the facts, 5 and disclaims fault and responsibility, on many of the 38 sales. While Genoray was 6 responsible for a number of the problems associated with the sales at issue, the Court 7 does not find that CMS has demonstrated a breach in each instance. Indeed, CMS has 8 fallen far short of such a showing: there were instances when Genoray was at fault 9 and fixed the problem consistent with its obligations; and there were other instances 10 when CMS or the customer was partially or wholly responsible. Thus, CMS has 11 failed to demonstrate the claimed breaches. 12 9. The breach of warranty claim fails for another reason: CMS has not 13 shown that the alleged breaches caused the broad scope of damages claimed in this 14 lawsuit. The Court is not persuaded that the alleged breaches, even if accepted, 15 caused the claimed damages. CMS has not convincingly shown that the alleged 16 breaches “crushed” its business causing it to incur the extent of damages claimed. 17 The evidence presented was exaggerated. Prior to the litigation, the parties had a 18 cooperative relationship and worked together to solve customer problems irrespective 19 of the party at fault (i.e., Genoray, CMS, or the customer). As Dave Orlando wrote in 20 the fall of 2018, the CMS “Service Department works together with the Genoray 21 service department handling customer complaints and finding resolutions.” Ex. 158, 22 at 146. The Court finds that Genoray was generally responsive and tried to remedy 23 the issues that arose and did not cause the extent of damages sought in this lawsuit. 24
25 1 In closing argument, CMS’s counsel suggested that the Court could take a percentage approach. For example, if the Court concluded that Genoray breached the 26 warranty in 50% of the sales at issue, the Court could take 50% of the total damages 27 sought. The Court rejects this approach as an unreliable method of demonstrating damages that arose out of specific alleged breaches. Among other problems, this 28 approach assumes that each alleged breach produced a similar amount of damages. 1 10. More generally, the Court did not find the testimony offered by CMS to 2 be credible and reliable. The CMS witnesses appeared to be advocates who 3 aggressively pursued positions most advantageous to the Orlandos, including extreme 4 claims of wrongdoing and damages.2 At trial, CMS portrayed Genoray as a terrible 5 company that—throughout their business relationship—consistently produced 6 defective products, provided poor customer service and technical support, and 7 tarnished CMS’s reputation, among other harmful things. This long history of alleged 8 wrongdoing, the Orlandos argued, ultimately “crushed CMS’[s] business.” K. 9 Orlando ¶ 451. 10 11. Yet much of the history of the relationship between the parties appeared 11 amicable, cooperative, and mutually beneficial—so much so that CMS strongly 12 desired to maintain the relationship and distribute Genoray products. Attempting to 13 bridge the gap between their contemporaneous business actions and subsequent 14 portrayal of the facts in litigation, the Orlandos testified at trial that they remained 15 hopeful throughout their relationship that Genoray would do better and thus continued 16 to do business. The Court does not find the explanation credible. The Orlandos 17 exaggerated the problems attributed to, and harm caused by, Genoray to such an 18 extent that the Court finds that it generally cannot rely on them whenever there was a 19 dispute in the evidence. 20 12. CMS next claims that Genoray breached the exclusivity provision in 21 their contract. The Court previously ruled on summary judgment that the contract did 22 not contain an automatic renewal provision. At trial, CMS offered another theory— 23 not presented in opposition to the summary judgment motion—for asserting 24 exclusivity. According to CMS, the parties continued to operate under the Agreement 25 26
27 2 The Court similarly found CMS witness Frank Borst to be partial to the Orlandos 28 1 after its expiration, resulting in an implied contract on the same terms and conditions, 2 including a new five-year exclusivity period. 3 13. Michigan law recognizes two types of implied contracts—a contract 4 implied in law and a contract implied in fact. 5A Mich. Civ. Jur. Contracts § 229. A 5 contract implied in law is a legal fiction imposed by a court requiring payment for 6 benefits received to avoid an injustice. Id. It is in all material respects a claim of 7 unjust enrichment. Id. A contract implied in fact is an agreement reached by the 8 parties as evidenced by their words or actions. Id. It is in all material respects a claim 9 of breach of an actual contract that embodies a meeting of the minds. Id.; see also 10 Innotext, Inc. v. Petra’Lex USA Inc., 694 F.3d 581, 594 (6th Cir. 2012) (“[A]n 11 ‘implied in law’ claim differs from an ‘implied in fact’ contract. An implied-in-fact 12 contract still requires mutual assent to the essential terms of the contract, but is 13 evidenced by the parties’ course of dealing.”). 14 14. CMS has not pleaded a claim for breach of a contract implied in fact. It 15 has pleaded instead a claim for breach of an express contract (i.e., the Agreement) in 16 Count I and a claim for unjust enrichment in Count IV. A claim for unjust enrichment 17 is the equivalent of a claim for breach of a contract implied in law. Id.; see also 18 Innotext, 694 F.3d at 594. Because CMS did not allege a breach of a contract implied 19 in fact, it cannot raise this new claim at trial. See Galicia v. Country Coach, Inc., 324 20 F. App’x 687, 689 (9th Cir. 2009) (upholding a lower court’s denial of leave to amend 21 and add new claims eight days before trial because such amendments would be unduly 22 prejudicial so close to trial). By raising this claim so late, CMS deprived Genoray of 23 the ability to move for summary judgment on this theory and otherwise to properly 24 prepare for this last-minute claim. 25 15. But even if the Court were to consider this untimely asserted claim, CMS 26 still would not be able to prove it on the facts elicited at trial. “As a general rule, an 27 implied agreement arises when a written contract expires by its terms and the parties 28 continue to perform as before.” Cloverdale Equip. Co. v. Manitowoc Eng’g Co., 964 1 F. Supp. 1152, 1162 (E.D. Mich. 1997), aff’d, 149 F.3d 1182 (6th Cir. 1998). The 2 “continued performance gives rise to a rebuttable presumption that the parties were 3 bound by an implied agreement with terms the same as those set forth in the expired 4 contract.” Wirt v. Ticona Polymers, Inc., No. 04-73753, 2006 WL 2660607, at *9 5 (E.D. Mich. Sept. 14, 2006) (citing Cloverdale, 964 F. Supp. at 1162 and Paxson v. 6 Cass Cnty. Rd. Comm’n, 38 N.W.2d 315, 310 (Mich. 1949)). But see Iverson Indus., 7 Inc. v. Metal Mgmt. Ohio, Inc., 525 F. Supp. 2d 911, 918-19 (E.D. Mich. 2007) 8 (concluding that there is a “permissible inference” rather than a “presumption”).3 9 Under Michigan law, this rule applies when the factual circumstances “show a mutual 10 intention to contract.” Cloverdale, 964 F. Supp. at 1161 (citation and quotation 11 omitted). 12 16. Significantly, Michigan law does not impliedly create agreements that do 13 not exist. That is, an agreement will be implied in fact only when the words or actions 14 of the parties express such agreement. Id.; see also Iverson Indus., 525 F. Supp. 2d at 15 919 (“[T]o create or modify a contract, there must be a meeting of the minds.”). On 16 the other hand, “if the evidence suggests contrary intentions, a contract does not 17 necessarily continue and is not implicitly renewed.” Iverson Indus., 525 F. Supp. 2d 18 at 917 (citing Howell Elec. Light & Power Co. v. Village of Howell, 92 N.W. 940, 941 19 (Mich. 1903) (stating that continued performance may imply an intent to renew, but 20 “[i]f there be anything to show a contrary intention, the renewal of the contract for the 21 stated period will not be inferred”)); see also 5A Mich. Civ. Jur. Contracts § 231 22 (“When negotiations for a contract are pending, the law will not conclude them by any 23 presumptions of an implied contract.”). 24 17. In this case, the parties clearly had not agreed by words or actions to 25 renew the Agreement for another five-year term. The original five-year term of the 26
27 3 This Court need not decide whether continued performance gives rise to a permissible inference rather than a rebuttable presumption because CMS’s claim fails 28 1 Agreement expired on July 25, 2018. That same year, the parties were attempting to 2 negotiate the terms of a contract extension, and Genoray offered terms that were 3 materially different, including exclusivity only on the Zen-7000 and only through the 4 end of 2019. See, e.g., Ex. 12. CMS did not agree to the offer and instead engaged in 5 negotiations. See, e.g., Ex. 13. Those negotiations did not result in an agreement, and 6 the discussions between the parties indicate that they disagreed fundamentally on the 7 term and scope of an extension. Indeed, CMS recognizes this fact in its complaint. 8 CMS alleged that when the “Agreement was nearing an end . . . , [Genoray] 9 continuously tried to force [CMS] to waive its exclusivity rights” and “also attempted 10 to limit the automatic 5-year extension of the agreement to only a 1-year extension.” 11 Compl. ¶¶ 48-50; see also Compl. ¶ 56 (alleging that Genoray was attempting to 12 negotiate a new agreement). 13 18. In these circumstances, the Court cannot find that the parties impliedly 14 agreed to another five-year term—or any renewed term for that matter. The facts 15 rebut any presumption that this was the mutual intention of the parties; and to force 16 such terms on Genoray would be contrary to its expressed intent and contrary to 17 Michigan law. See Iverson Indus., 525 F. Supp. 2d at 518-19. 18 19. CMS also contends that Genoray breached another term in the 19 Agreement—the option provision. In Section 10 of the Agreement, the parties 20 provided: Genoray hereby grants to CMS, a first option to be the exclusive 21 distributor for any subsequent generation or iteration[] of the 22 Products . . . in the Territory. Upon development of such New Products, Genoray shall promptly notify CMS, and CMS shall have 23 the opportunity to review and evaluate such New Products, and determine whether it desires to distribute such New Products subject 24 to mutually agreeable terms between CMS and Genoray. CMS shall have thirty (30) days to exercise its option; in the event CMS declines 25 such right, or fails to exercise its rights within the thirty (30) day 26 period, Genoray may directly, or indirectly, through the use of other distributors promote, market and sell such New Products in the 27 Territory.
28 1 Ex. 6 at 3. The parties did not offer any extrinsic evidence about the meaning of this 2 provision. The Agreement was drafted by counsel for CMS. 3 20. Genoray developed the Oscar 15, a flat panel C-Arm. At trial, Genoray 4 did not seriously contest the fact that the Oscar 15 was a “subsequent generation” of 5 the Zen-7000, triggering the option in Section 10 of the Agreement. Genoray’s 6 counsel essentially conceded this point in closing argument. 7 21. Under Section 10, CMS had 30 days to exercise its option to be the 8 exclusive distributor of the Oscar 15. Section 10 fixes the event that triggers the 30- 9 day period—namely, Genoray’s notification of the development of the new product 10 along with the opportunity to review and evaluate it. 11 22. Genoray notified CMS of the development of the Oscar 15 in May 2016. 12 Genoray also provided CMS with detailed drawings and specifications and requested 13 its feedback on the product, price competitiveness, and potential market penetration. 14 Ex. 9. Genoray explained that the Oscar 15 would have greater functionality than the 15 Zen-7000, and that Genoray expected to submit the Oscar 15 for FDA review by early 16 2017 with an anticipated launch date in June 2017. Ex. 9.4 CMS did not exercise its 17 option within 30 days of this notification and opportunity to review the Oscar 15. 18 23. At trial, CMS contended that the May 2016 notification did not trigger 19 the 30-day option period because the Oscar 15 was not completely developed by then. 20 In closing argument, counsel for CMS could not pinpoint when product development 21 had been completed but offered that “it was certainly by July 2017,” when Genoray 22 applied for FDA approval of the Oscar 15. In support of this interpretation of Section 23 24
25 4 Kristin Orlando noted that much of the information provided to CMS was written in Korean. But it appears that at least Jae Perez-Kim, a CMS employee, was able to 26 evaluate the information. Ex. 9, at 1-3 (evaluating the product). In any event, CMS 27 has not shown that there was an impenetrable language barrier that prevented its review and evaluation. Presumably, CMS would have sought a translation if it was 28 interested in evaluating the new product. 1 10, CMS’s counsel argued that CMS could not be expected to decide whether to 2 exercise its option until there was “complete” development of the product. 3 24. CMS’s argument is legally flawed and factually unsupported. Legally, 4 CMS has not demonstrated that the parties mutually intended that the new product be 5 “complete” before the option period would commence. The language the parties 6 chose to use in Section 10 is “[u]pon development,” not “[u]pon [complete] 7 development.”5 It is true, however, that the parties did not specify the requisite state 8 of development. To the extent that this omission renders Section 10 ambiguous, the 9 reasonable interpretation of this provision is that the product had to be sufficiently 10 developed to allow for meaningful review and evaluation for purposes of determining 11 whether CMS wished to distribute the product exclusively. 12 25. Under this interpretation, CMS has not factually shown that the Oscar 15 13 was insufficiently developed in May 2016 to allow it to decide whether to exercise its 14 option. CMS provided little evidence at trial about the state of development of the 15 Oscar 15 in May 2016—and no reliable evidence that the product was insufficiently 16 developed to allow CMS to make a determination about whether it wanted to pursue 17 exclusivity. 18 26. CMS’s counsel argued that the development of the Oscar 15 was 19 “complete” by the time that Genoray applied for FDA approval. But even if this is 20 true, CMS failed to show the difference in the state of development between May 21 2016 (when it received notification of the development) and July 2017 (when the 22 product was submitted for FDA approval). That is, CMS did not show that (a) the 23 product had undergone significant development between May 2016 and July 2017 and 24 (b) the Oscar 15 was not developed enough in May 2016 to allow for meaningful 25
26 5 Nor does the introduction of the word “complete” render the interpretation of 27 Section 10 clear. A new product can be expected to undergo changes after it is developed and even after it is launched. The point at which the product has reached 28 1 review for purposes of deciding whether to exercise the option. The two principal 2 witnesses involved in reviewing the Oscar 15 for CMS—Dave Orlando and Jae Perez- 3 Kim (see Ex. 9)—did not testify at trial. 4 27. Thus, the Court finds that CMS provided notice and an opportunity to 5 review the Oscar 15 in May 2016. CMS did not exercise its option within 30 days of 6 that notification, and CMS failed to show that the Oscar 15 was insufficiently 7 developed to conduct a meaningful review to make an informed decision. During that 8 30-day period, CMS did not communicate an interest in exclusively distributing the 9 new product, commence any discussions about such an interest, suggest that it did not 10 have enough information to determine whether it had an interest, or request an 11 extension of the 30-day period. 12 28. Even if the Oscar 15 were not sufficiently developed until July 2017, 13 CMS has not proven a breach of the Agreement because it did not present any reliable 14 evidence of when, if ever, it exercised its option. CMS’s counsel acknowledged in 15 closing argument that his client never formally exercised its option and argued instead 16 that CMS adequately communicated its intent to exercise its option through the words 17 and actions of Dave Orlando. The problem with this argument is twofold. 18 First, the evidence of communications between the parties about the option was 19 sparse, disputed, confusing (at times), and ultimately insufficient to conclude that 20 Genoray breached the Agreement. The parties disputed the contents of the 21 discussions between Dave Orlando and Genoray about exclusivity to distribute the 22 Oscar 15. And as late as January 7, 2019, Dave Orlando, responding to a proposed 23 Addendum to the Agreement, communicated to Genoray that he believed that CMS 24 had “the right of first refusal” but that “[CMS] would be open to possibly considering 25 a non-exclusive arrangement on the Oscar series.” Ex. 156. A few months later, 26 Dave Orlando, in the context of continued negotiations over a distribution contract, 27 stated: “[W]e would like to work with you [Genoray] and give you the flexibility that 28 you desire with the Oscar 15 product . . . .” Ex. 13. While there are facts suggesting 1 that CMS at points expressed an interest in obtaining the exclusive right to sell the 2 Oscar 15 and that Genoray was resisting, the evidence was insufficient to enable the 3 Court to determine whether the parties were posturing during negotiations or 4 expressing legally operative contractual positions.6 5 Second, the purported exercise of the option occurred after the Agreement had 6 expired in July 2018. Based on the evidence at trial, the Court does not believe that 7 CMS communicated an intent to exercise its option before the fall of 2018, and the 8 parties did not seriously discuss any terms about such exclusivity before then. In fact, 9 the parties appeared to discuss exclusivity for the Oscar 15 in earnest in the fall of 10 2018—after the expiration of the Agreement. CMS prepared a business plan for a 11 meeting with Genoray in October 2018 attended by David Orlando for CMS and 12 Eugene Oh and Chris Yoon for Genoray. CMS has not shown that the parties 13 mutually intended that the option granted in Section 10 was to survive the expiration 14 of the Agreement. 15 29. Even if CMS were able to establish a breach of Section 10 of the 16 Agreement, CMS has not demonstrated that it suffered the damages it claims as a 17 result. It appears that CMS had serious internal problems that impeded its ability to 18 operate profitably, and it ultimately ceased doing business. 19 30. On March 17, 2020, Tony Orlando notified Genoray that his brother, 20 Dave Orlando, left CMS to work for a competitor, stating: “Unfortunately Dave is 21 now selling a competitive product which is very disheartening for me . . . .” Ex. 170. 22 In that same letter, Tony Orlando stated that he would be assuming his brother’s role 23 as the person “in charge of C arms” and claimed to have “many leads and dealer 24 25
26 6 Dave Orlando was a key figure in the discussions about the option, and he did not 27 testify at trial. Kristin and Tony Orlando were not directly involved in the relevant communications with Genoray, and the Court does not believe it can rely on their 28 1 opportunit[ies]” that would result in an increase in sales. Id. He also claimed that 2 CMS’s “financial status has been steadily improving.” Id. 3 31. Less than one month later, Tony Orlando sent Genoray a letter claiming a 4 breach of contract and stating that “[CMS] simply cannot continue to sell [Genoray’s] 5 defective and unsupported products to customers as that will cause our damages to 6 skyrocket.” Ex. 171. According to CMS, “the defects with the Zen 7000 and Oscar 7 15 are so significant that we have had multiple customers demand full refunds for the 8 products and threaten additional action against us.” Id. 9 32. The Court is not convinced that CMS would have profitably sold the 10 Oscar 15 on an exclusive basis. It appears that CMS was experiencing significant 11 internal problems, particularly the loss of Dave Orlando. Dave Orlando was the key 12 figure in the C-Arm operations for CMS. Tony Orlando, on the other hand, had 13 relatively high-level involvement, as was evident from his testimony. When his 14 brother left the company, Tony Orlando purported to step into his critical operational 15 role and acknowledged that Genoray might be “skeptical of [CMS’s] capabilit[ies].” 16 Ex. 170. Less than 30 days later, CMS announced that it would discontinue selling 17 Genoray products. Ex. 171. 18 33. CMS suggested that there was no cause and effect between Dave 19 Orlando’s leaving the company and the decision to discontinue the business. While 20 the Court does not conclude that there is a perfect causal relationship between these 21 two events, it does find that CMS was not forthright at trial about the true and likely 22 significant effect of the loss. CMS, a small company, lost a key figure who had 23 significant knowledge about the products, the business, and the overall operations and 24 who had substantial relationships with dealers, potential customers, and other relevant 25 industry participants. And CMS did not just lose this key figure, it had to face him as 26 a competitor selling a competing product in the same market. 27 34. In his letter to Genoray, Tony Orlando described the departure of his 28 brother from the company to sell a competitor’s product as “very disheartening” for 1 him. Ex. 170. At trial, Tony Orlando blamed the departure on Genoray, testifying 2 that his brother left because he was “extremely frustrated with the issues [CMS was] 3 having with the Genoray product.” Like much of the evidence presented by CMS, this 4 testimony appears to be exaggerated. Dave Orlando worked to continue the business 5 relationship with Genoray. While Dave Orlando may have periodically expressed 6 frustration with product issues, the Court does not find credible that he left the family 7 business to sell a competitor’s product as a result. 8 35. CMS also claimed that Genoray’s products and service, including both 9 the Zen-7000 and Oscar 15, were so fundamentally flawed that CMS would sustain 10 losses (not profits) by selling the products. Although the Court finds this claim to be 11 exaggerated for litigation purposes, the evidence CMS introduced to support its 12 position taints its showing of lost profits. CMS has not demonstrated that it would 13 have been successful in distributing the Oscar 15 without the alleged breaches, let 14 alone that it would have achieved the level of profitability suggested by its damages 15 expert. The Court therefore finds that CMS has not proven its damages claim even if 16 it could show a breach of Section 10. 17 36. In summary, the Court finds that CMS failed to establish that Genoray 18 breached the exclusivity provision in their contract (Count I), breached the warranty 19 on the alleged 38 sales (Counts II & V), or was unjustly enriched (Count IV).7 There 20 is one conceded breach, however. Genoray admitted that while the Agreement was in 21 effect, it sold one Zen-7000 device to KPI Ultrasound, Inc. on December 27, 2016 22 during the exclusivity period.8 Ex. 138. As Genoray concedes this breach and did not 23
24 7 Count III of CMS’s complaint was dismissed with prejudice by stipulation of the parties on June 30, 2020. Dkt. No. 13. 25 8 CMS contends that Genoray did not prove that the other four Zen-7000 devices sold 26 during the term of the Agreement to World Wide Medical were pursuant to the exclusivity carve-out in the Agreement. See Ex. 6 (permitting Genoray to continue 27 selling to World Wide Medical “for the purpose of collecting and reducing outstanding account balances owed to Genoray”); Ex. 138 (noting four Zen-7000 28 1 appear to object to the proffered damages by Patrick O’Keefe for the purposes of this 2 one sale, the Court finds that Genoray breached the Agreement and caused $13,566.50 3 in damages to CMS.
4 GENORAY COUNTERCLAIM 5 37. In its counterclaim, Genoray claims that CMS breached their agreement 6 by failing to pay for 6 devices and 16 extended warranties. K. Min Decl. ¶¶ 8-62. 7 38. Genoray sold four Zen-7000 devices—purchase orders 71616, 71741, 8 71768, and 71797—between October 21, 2019 and January 24, 2020 for which CMS 9 has failed to pay. Ex. 150; K. Min. Decl. ¶¶ 8-15, 24-49. Genoray sold these four 10 Zen-7000 devices for a total of $240,900, and has not been paid any of the outstanding 11 balance for these devices. Genoray further sold two Oscar 15 devices to CMS— 12 purchase orders 71729 and 71939—on December 26, 2019 and March 18, 2020, 13 respectively. Ex. 150; K. Min. Decl. ¶¶ 15-23, 50-57. Genoray sold both Oscar 15 14 devices for a total of $148,000, and CMS has only paid $7,900 to Genoray. K. Min. 15 Decl. ¶ 21. Thus, Genoray has not been paid the outstanding balance of $140,100 for 16 the two Oscar 15 devices sold to CMS. 17 39. Genoray also sold CMS 16 warranties at $6,000 per warranty. Ex. 152; 18 K. Min. Decl. ¶¶ 58-62. CMS has not paid for any of these 16 warranties, thus 19 Genoray has not been paid an outstanding balance of $96,000. 20 40. The Court finds that Genoray agreed to sell these 6 devices and 16 21 warranties for a total of $484,900, and that CMS agreed to pay for them. CMS has 22 23
24 in placing the burden of proof on Genoray—it is CMS that is claiming breach of the 25 Agreement, and thus its burden to demonstrate that Genoray did not sell devices to World Wide Medical for purposes of reducing their debt obligation. 23 Williston on 26 Contracts § 63:14 (4th ed.) (“The plaintiff or party alleging the breach has the burden of proof on all of its breach of contract claims.”); see also 3A Mich. Pleading & Prac. 27 § 36:242 (2d ed.) (“If the plaintiff asserts a breach of contract, the plaintiff bears the burden to prove a breach or nonperformance of the contract on the part of the 28 1 | breached its agreements by failing to pay its outstanding balance of $477,000, causing 2 || damages to Genoray in the amount of $477,000. 3 41. Inits Amended Proposed Findings of Fact and Conclusions of Law, 4 || Genoray asserted for the first time an additional $215,750 in damages for outstanding 5 || customer and labor warranties. Dkt. No. 104-1 72. In a trial declaration, Genoray 6 | claimed that it was “forced to incur the additional liability and expense associated 7 | with those warranties in order to preserve its reputation and relationship with 8 || customers.” K. Min Decl. 65. Because Genoray did not plead these damages in its 9 | counterclaim, it cannot recover these damages alleged on the eve of trial. See Galicia, 10 | 324 F. App’x at 689. 11 42. Inshort, the Court finds that CMS breached its agreements to pay 12 || Genoray for the 6 devices and 16 warranties Genoray sold to CMS, and that CMS’s 13 | affirmative defenses are without merit. Genoray, however, failed to timely plead the 14 | additional $215,750 in damages it sought at trial, and thus is not entitled to their 15 || recovery. CMS therefore owes Genoray its outstanding balance of $477,000 in 16 | damages.’ 17 DISPOSITION 18 The Court will enter a judgment separately. 19 49 | Dated: October 12, 2021 21 OSS. 22 ‘Stanley Blumenfeld, Jr. 73 United States District Judge 24
26 | ? The Court ruled on various objections at trial. None of the rulings affects the decision in this case. That is, even if the Court were to consider all the objectionable 27 testimony offered by CMS, the findings and conclusions would be the same. And in 4g | teaching its decision, the Court has not relied on any of the evidence to which CMS has lodged written objections.