1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 * * *
7 GLOBAL GRAPHIC RESOURCES LLC, et Case No. 2:19-cv-01164-RFB-EJY al. 8 ORDER Petitioners, 9 v. 10 TRIUNFO, INC., formerly known as 11 Catalina Graphic Films, Inc.,
12 Respondent.
13 GLOBAL GRAPHIC RESOURCES LLC, et 14 al.
15 Counter Claimants,
16 v.
17 TRIUNFO, INC., formerly known as Catalina Graphic Films, Inc., 18 19 Counter Defendant.
20 21 I. INTRODUCTION 22 Before the Court is Petitioners-Counter Claimants Global Graphic Resources LLC 23 (“GGR”) and Daryl K. Hanzal’s (ECF No. 71) MOTION for Partial Summary Judgment. 24 For the foregoing reasons, the Court grants in part and denies in part the motion for partial 25 summary judgment. 26
27 II. PROCEDURAL BACKGROUND 28 On June 14, 2021, Respondent Triunfo, Inc., formerly known as Catalina Graphic Films, 1 Inc., (“Catalina”) filed an amended complaint against Petitioners. ECF No. 59. GGR and Hanzal 2 filed an answer on June 28, 2021. ECF No. 60. On June 28, 2021, GGR and Hanzal filed 3 Counterclaims against Catalina. ECF No. 62. Catalina filed an answer on July 2, 2021. ECF No. 4 63. Discovery was due by May 2, 2022, and dispositive motions were due June 1, 2022. See ECF 5 No. 70. 6 On May 10, 2022, GGR and Hanzal filed the instant Motion for Partial Summary 7 Judgment. ECF No. 71. Catalina filed a Response on May 31, 2022. ECF No. 73. GGR and Hanzal 8 filed a Reply on June 13, 2022. ECF No. 75. The Court held a hearing regarding the instant on 9 March 7, 2023. ECF No. 83. 10 This Order follows. 11 12 III. FACTUAL BACKGROUND 13 a. Undisputed Facts 14 The Court finds the following facts to be undisputed. 15 i. Events Leading to the Agreements 16 Catalina manufactured pressure sensitive products primarily used for printed retail point of 17 purchase advertising and promotion. Catalina had manufacturing facilities in Chicago, Illinois and 18 Las Vegas, Nevada and sold and distributed its products nationwide through relationships with 19 third-party companies and distributors. In 2016, Hanzal was president of Ritrama, Inc., a 20 manufacturer based in the Midwest that designed and manufactured self-adhesive materials. In 21 September 2016, Hanzal approached Catalina shareholders, Jeff Dworman and Alan Dworman 22 (“Dwormans”), at an industry trade show to tell them he was planning to leave Ritrama to start a 23 new company and was interested in continuing his business relationship with Catalina. Hanzal 24 informed the Dwormans that he was subject to a one-year non-compete agreement with Ritrama, 25 but that the new company he formed, GGR, would sell products unrelated to Ritrama’s and 26 Catalina’s business to avoid the non-compete limitation. Hanzal and Catalina contemplated a 27 continued relationship after the expiration of Hanzal’s non-compete with Ritrama. Hanzal and 28 / / / 1 Catalina discussed the idea that Catalina would move its Midwest facility from Chicago to 2 Minneapolis, where Hanzal lived, and that Hanzal would be responsible for Midwest region sales. 3 During the negotiations of a potential agreement regarding these sales, Hanzal was aware 4 that the Dwormans were engaged in discussions to sell Catalina to Nekoosa Coated Products, LLC 5 (“Nekoosa”), a competitor. The parties executed a Sales Representative Agreement (“SRA”) and 6 a Consulting Agreement (“CA”) (together, the “Agreements”), both with an effective date of 7 November 1, 2017. On March 1, 2018, Catalina sold its assets to Nekoosa, but Nekoosa declined 8 to assume the Agreements. Catalina was unable to provide products for GGR/Hanzal to sell, 9 following the sale of Catalina’s assets to Nekoosa. In December 2018, Catalina made its last 10 payment to GGR under the CA. On December 11, 2018, Catalina notified GGR and Hanzal that 11 the Agreements were terminated. In doing so, Catalina relied on paragraph 9.2 of Exhibit B to the 12 SRA, claiming that GGR had not met the requisite Annual Sales Quota. The CA was consequently 13 terminated pursuant to paragraph 5.3(c) of the CA. 14 ii. The Agreements 15 1. The Sales Representative Agreement 16 The SRA states in relevant part:
17 “This Sales Representative Agreement (this “Agreement”), 18 dated November 1, 2017 (the “Effective Date”), is by and between Catalina Coating & Plastics Inc. d/b/a Catalina Graphic Films, Inc., 19 a Nevada corporation (“Company”), and Global Graphic Resources LLC, a Minnesota limited liability company (“Representative”). 20 1. Appointment and Acceptance. The Company hereby 21 appoints Representative as its sales representative to promote the sale of and solicit orders for the Company’s products and services 22 in the Assigned Territory (as defined below), and Representative accepts the appointment and agrees to promote the sale of and solicit 23 orders for the Company’s products and services. The scope of the 24 Company’s products and services covered by this Agreement shall be the current line of products and services in existence on the 25 Effective Date. . . . 26 3. Exclusive Rights. Subject to the terms of this Agreement, 27 during the Term (as defined in Paragraph 5) and in consideration for Representative’s satisfaction of the annual Net Sales (as defined in 28 Paragraph 4) quotas described on Exhibit A attached hereto (the 1 “Annual Net Sales Quotas”),1 the Company shall not engage any other sales representative to promote and sell the Company’s 2 products and services in the Assigned Territory (the “Exclusive 3 Rights”). 4. Compensation. 4 (a) Subject to the terms in Section 3.2 of the Terms and Conditions (as defined below), Company shall pay Representative 5 five percent (5%) (the “Commission Payment”) of the Net Invoice 6 Price (as defined in this Paragraph 4) of the Company’s products shipped into or services provided in the Assigned Territory on 7 monthly Net Sales in excess of Two Hundred Fifty Thousand Dollars ($250,000) (the “Sales Threshold”). The Commission 8 Payment shall be paid on customer orders regardless of whether the 9 orders are transmitted to the Company by Representative or received directly by the Company from the customer. . . . 10 . . . 5. Term. The term of this Agreement (the “Term”) shall 11 commence on the Effective Date and shall continue through 12 December 31, 2022, unless terminated earlier by either party pursuant to the Terms and Conditions. The Term shall automatically 13 extend for additional, consecutive one (l)-year periods unless either party gives the other written notice of its election to terminate at 14 least One Hundred Eighty (180) days prior to the end of the Term or 15 the applicable renewal term. 6. Early Termination Payment. Notwithstanding the Term, 16 upon One Hundred Eighty (180) days prior written notice to Representative, the Company may terminate this Agreement 17 effective December 31, 2020 (an “Early Termination”) in exchange 18 for payment of the Early Termination Payment (as hereinafter defined). The “Early Termination Payment” means a one-time 19 payment to Representative in an amount equal to the greater of the aggregate amount of Commission Payments paid to Representative 20 in 2018, 2019, or 2020. The Early Termination Payment shall be 21 paid in a lump sum on or before January 31, 2021. 7. Terms and Conditions. This Agreement is subject to the 22 additional covenants, general terms and conditions attached hereto as Exhibit B (the “Terms and Conditions”). 23 ECF No. 73-4 at 3-4 (underline in original). Exhibit B, ECF No. 73-4 at 6-9, states in relevant part 24
25 8. Ownership. Company shall own all right, title and interest in and to the Company's products. 26
27 1 Under the SA, the annual net sales quotas were the following: January 1, 2018 to December 31, 2018 - 28 $4,500,000, January 1, 2019 to December 31, 2019 - $6,000,000, January 1, 2020 to December 31, 2020 - $8,000,000, January 1, 2021 to December 31, 2021 - $9,600,000, and January 1, 2022 to December 31, 2022 - $11,000,000. 1 9. Termination. 9.1 Either party may terminate the Agreement if 2 the other party is in material breach of any of its obligations 3 hereunder and has not cured the breach within thirty (30) days after written notice specifying the breach. . . . 4 9.2 Company may terminate this Agreement 5 and/or the Exclusive Rights upon notice to Representative in the 6 event that Representative fails to satisfy at least ninety-three percent (93%) of the applicable quota for any Annual Net Sales Quota. 7 9.3 Either party may terminate this Agreement 8 for any reason or no reason prior to the end of the Term or any 9 renewal term pursuant to Paragraph 5 of the Agreement. . . . 10 9.5 During the period of time from the date any notice of termination is given until the effective date of termination, 11 (a) both parties shall continue to fulfill their obligations under this 12 Agreement, and (b) Company shall have the right to interview, evaluate, select and train a replacement sales representative for the 13 Assigned Territory.
14 9.6 Notwithstanding the terms set forth in 15 Paragraph 5 of the Agreement, in the event of a Sale of the Company (as hereinafter defined), Representative shall continue to serve as 16 the Company’s sales representative pursuant to the terms in the Agreement for a period of at least six (6) months after the date of 17 the closing of a Sale of the Company. After such six (6)-month 18 period, Representative may terminate this Agreement for convenience upon ninety (90) days written notice to the Company. 19 For purposes of this Agreement, “Sale of the Company” means (a) a sale, merger or other transaction or series of transactions, as the 20 result of which those persons or entities who beneficially held 50% 21 or more of the voting power of the Company as of the effective date of the transaction or series of transactions do not beneficially hold 22 50% or more of the voting power of the Company (or the surviving or resulting entity thereof) after giving effect to such transaction or 23 series of transactions, or (b) the direct or indirect sale or transfer, in 24 any single transaction or series of transactions, of all or substantially all of the assets of the Company. 25 10. Effect of Termination. If this Agreement is 26 terminated (a) by Company pursuant to Section 9.1 above, then 27 Company shall have no further obligation to pay any Commission Payments to Representative after the termination date, provided that 28 Representative shall remain responsible to Company for any charge- 1 backs or refunds required pursuant to Section 3.2, or (b) by Representative pursuant to Section 9.1 above or by either party 2 pursuant to Paragraph 5 on page 2 above, then Company shall 3 continue to pay Representative, subject to the terms of this Agreement, Commission Payments on all orders for Company 4 products or services calling for delivery into the Assigned Territory which orders are dated prior to the effective date of termination. . . . 5 . . . 6 13. Limitation of Liability: Disclaimer of Warranties. Except for damages actually awarded to a third party, neither party 7 shall be liable to the other party for any indirect, special, punitive, or consequential damages (including, without limitation, lost 8 profits) arising out of or in connection with this Agreement or the 9 breach of this Agreement. . . .
10 ECF No. 73-4 at 7-8 (bold in original). 11 2. The Consulting Agreement 12 For its part, the CA provides the following. 13 This Consulting Agreement (this “Agreement”) is made and entered 14 into as of November 1, 2017 (the “Effective Date”), by and among 15 Catalina Coating & Plastics Inc. d/b/a Catalina Graphic Films, Inc., a Nevada corporation (the “Company”) and Global Graphic 16 Resources LLC, a Minnesota limited liability company (“Consultant”) for the services of Daryl K. Hanzal (“Hanzal”). This 17 Agreement is being entered into concurrently with the Proprietary 18 Information, Inventions Assignment and Anti-Corruption Agreement by and among the Company, Consultant and Hanzal of 19 even date herewith (the “PIIA”), attached hereto as Exhibit B. . . . 20 1. Engagement. The Company hereby engages 21 Consultant to provide the Services (as defined in Section 2 below). Consultant hereby accepts such engagement and shall cause Hanzal 22 to provide all Services. Hanzal agrees to provide the Services to the Company pursuant to the terms in this Agreement. 23
24 2. Services. For purposes of this Agreement, the term “Services” means the services described on Exhibit A attached 25 hereto.2 . . . Consultant shall cause Hanzal to devote his productive
26 2 Exhibit A, ECF No. 73-3 at 9, provides: “The Company is engaging Consultant for the services of Hanzal 27 to perform business development services for the Company and to advise the Company in connection with its operations within Minnesota, Iowa, North Dakota, South Dakota, Wisconsin, Illinois, Indiana, Michigan, and the 28 greater St. Louis metropolitan statistical area, Sharpline Converting in Wichita, Kansas, and Adcraft Screen Printing & Digital Products in Sioux City, Nebraska (collectively, the ‘Assigned Territory’).” 1 time, energies, resources and abilities, to the extent required pursuant to Section 4, to providing the Services pursuant to this 2 Agreement. It is contemplated that all of the Services shall be 3 performed personally by Hanzal unless otherwise agreed to by the Company in writing. . . . 4 3. Compensation and Expenses. As the sole 5 consideration for providing the Services, the Company shall pay 6 Consultant Ten Thousand Four Hundred Dollars ($10,400) per month (the “Consulting Fee”) during the Term (as defined in Section 7 5). The Consultant shall bill the Company for the Consulting Fee on a monthly basis. The Company shall pay the Consulting Fee set forth 8 in the Consultant’s invoice within fifteen (15) days after receipt of 9 such invoice. All expenses incurred by Consultant or Hanzal in connection with providing the Services in the Assigned Territory (as 10 defined in Exhibit A) shall be the sole responsibility of Consultant; provided, however, that the Company shall make a one-time 11 payment to Consultant of $35,000 on or before November 15, 2017, 12 to reimburse Consultant for start-up expenses incurred under this Agreement. . . . 13 . . . 5. Term and Termination. 14 5.1 Term. The term of this Agreement (the 15 “Term”) shall commence on the Effective Date and shall continue through December 31, 2022, unless terminated earlier by either 16 party pursuant to the terms in this Section 5. The Term shall automatically extend for additional, consecutive one (1)-year 17 periods unless either party gives the other written notice of its 18 election to terminate at least One Hundred Eighty (180) days prior to the end of the Term or the applicable renewal term. 19 5.2 With Cause. Either party may terminate the 20 Agreement if the other party is in material breach of any of its 21 obligations hereunder and has not cured the breach within thirty (30) days after written notice specifying the breach. . . . 22 5.3 Automatic Termination. This Agreement 23 shall terminate automatically, and without the giving of notice, in 24 the event that: (a) Hanzal dies, (b) either party shall become insolvent, shall ask its creditors for a moratorium, shall be the 25 subject of a bankruptcy, or shall suffer appointment of a temporary or permanent receiver, trustee, or custodian for all or a substantial 26 part of its assets, or (c) that certain Sales Representative Agreement 27 of even date herewith by and between the Company and Consultant terminates (the “Rep Agreement”). 28 1 5.4 Effect of Termination. On the termination of this Agreement, the Company shall not be obligated to continue to 2 make any payments to Consultant other than to pay for any 3 Consulting Fees for Services provided prior to the termination, pursuant to the terms of this Agreement. 4 5.5 Termination by Consultant. Notwithstanding 5 the terms set forth in Section 5.1, in the event of a Sale of the 6 Company (as hereinafter defined), Consultant and Hanzal shall continue to provide the Services for a period of at least six (6) 7 months after the date of the closing of a Sale of the Company. After such six (6)-month period, Consultant may terminate this 8 Agreement for convenience upon ninety (90) days written notice to 9 the Company. For purposes of this Agreement, “Sale of the Company” means (a) a sale, merger or other transaction or series of 10 transactions, as the result of which those persons or entities who beneficially held 50% or more of the voting power of the Company 11 as of the effective date of the transaction or series of transactions do 12 not beneficially hold 50% or more of the voting power of the Company (or the surviving or resulting entity thereof) after giving 13 effect to such transaction or series of transactions, or (b) the direct or indirect sale or transfer, in any single transaction or series of 14 transactions, of all or substantially all of the assets of the Company. 15 ECF No. 73-3 at 2-4 (underline in original). Finally, the Agreements are both integrated, ECF No. 16 73-3 at 7; ECF No. 73-4 at 9, and allow for assignment, ECF No. 73-3 at 6; ECF No. 73-4 at 9. 17 18 b. Disputed Facts The parties dispute the following facts regarding why, by who, and when the Agreements 19 were terminated. Whether it was foreseeable that Nekoosa would not assume the Agreements 20 because Nekoosa would be unable to appoint GGR as an exclusive distributor in the applicable 21 territory pursuant to the Agreements. Whether paragraph 9.6 of the SRA required GGR to continue 22 serving as Catalina, and not Nekoosa’s, sales representative. Whether the Agreements, including 23 paragraph 9.6 of the SRA, were intended to give GGR and Hanzal an option to terminate the 24 Agreements should they not like working with the new buyer. Whether GGR and Hanzal refused 25 to renegotiate new terms of the Agreements with Nekoosa. Finally, whether GGR and Hanzal were 26 paid all sums due and owing through the termination pursuant to the Agreements. 27 / / / 28 1 IV. DISCUSSION 2 For the foregoing reasons, the Court grants in part and denies in part GGR and Hanzal’s 3 motion for partial summary judgment on Catalina’s causes of action. 4 a. Legal Standard 5 Summary judgment is appropriate when the pleadings, depositions, answers to 6 interrogatories, and admissions on file, together with the affidavits, if any, show “that there is no 7 genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” 8 Fed. R. Civ. P. 56(a); accord Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The substantive 9 law governing a matter determines which facts are material to a case. Anderson v. Liberty Lobby, 10 477 U.S. 242, 248 (1986). When considering the propriety of summary judgment, the court views 11 all facts and draws all inferences in the light most favorable to the nonmoving party. Gonzalez v. 12 City of Anaheim, 747 F.3d 789, 793 (9th Cir. 2014). If the movant has carried its burden, the 13 nonmoving party “must do more than simply show that there is some metaphysical doubt as to the 14 material facts . . . . Where the record taken as a whole could not lead a rational trier of fact to find 15 for the nonmoving party, there is no genuine issue for trial.” Scott v. Harris, 550 U.S. 372, 380 16 (2007) (alteration in original) (internal quotation marks omitted). It is improper for the Court to 17 resolve genuine factual disputes or make credibility determinations at the summary judgment 18 stage. Zetwick v. County of Yolo, 850 F.3d 436, 441 (9th Cir. 2017) (citations omitted). 19 b. Analysis 20 i. Breach of Contract (Second Cause of Action) 21 The Court grants summary judgment on Catalina’s breach of contract claim in GGR and 22 Hanzal’s favor. 23 1. Catalina Breached the Contract 24 In Nevada, breach of contract is “a material failure of performance of a duty arising under 25 or imposed by agreement.” Bernard v. Rockhill Dev. Co., 734 P.2d 1238, 1240 (1987). A breach 26 of contract claim under Nevada law requires (1) the existence of a valid contract, (2) a breach by 27 the defendant, and (3) damage as a result of the breach. Richardson v. Jones, 1 Nev. 405, 409 (Nev. 28 1865); Rivera v. Peri & Sons Farms, Inc., 735 F.3d 892, 899 (9th Cir. 2013). Under Nevada law, 1 the objective of interpreting contracts is to discern the intent of the contracting parties. Am. First 2 Fed. Credit Union v. Soro, 359 P.3d 105, 106 (Nev. 2015). “[W]hen a contract is clear, 3 unambiguous, and complete, its terms must be given their plain meaning and the contract must be 4 enforced as written; the court may not admit any other evidence of the parties’ intent because the 5 contract expresses their intent.” Ringle v. Bruton, 86 P.3d 1032, 1039 (Nev. 2004). “[W]hen a 6 contract is ambiguous, it will be construed against the drafter,” and “[i]f there is an ambiguity 7 requiring extrinsic evidence to discern the parties’ intent, summary judgment is improper.” 8 Dickenson v. State, Dep't of Wildlife, 877 P.2d 1059, 1061 (Nev. 1994). 9 GGR and Hanzal argue that Catalina, as the breaching party, cannot claim breach of 10 contract. Catalina breached the SRA in three respects, based on the March 1, 2018 sale of its assets 11 to Nekoosa. First, the sale resulted in Catalina denial of GGR’s Exclusive Right to sell Catalina’s 12 products as there was none to sell anymore. Second, the sale also resulted in Nekoosa selling 13 Catalina’s products in GGR’s Assigned Territory. Finally, the sale resulted in GGR’s alleged 14 breach, i.e., its failure to satisfy the Net Annual Sales Quota in 2018, was due to the sale of all of 15 Catalina’s assets that left GGR with no products to sell. Catalina, however, contends that it was 16 GGR and Hanzal that breached the Agreements. This is because they refused to renegotiate the 17 Agreements with Nekoosa, as they were required to continue to work with a successor of Catalina 18 for up to six-months following the closing of a sale pursuant to the Agreements. Yet, despite 19 Nekoosa’s communications, GGR and Hanzal failed to perform in accordance with the explicit 20 language of the Agreements. Accordingly, the contract could have been terminated thirty days 21 after the March 23, 2018 notice. Instead, after nine months of non-performance by GGR and 22 Hanzal and explicit representations, as early as March of 2018, that they no longer represented 23 Catalina, Catalina properly terminated the Agreements pursuant to paragraph 9.2 of the SRA for 24 GGR’s failure to meet the requisite annual sales quota. 25 The Court finds that, even assuming the facts in the light favorable to Catalina, Catalina 26 breached the Agreements as a matter of law by failing to provide GGR and Hanzal with products 27 and services to sell. It is undisputed that the Agreements gave GGR and Hanzal the exclusive right 28 to sell Catalina’s products in the Assigned Territory, from November 2017 to December 31, 2022. 1 It is also undisputed that the Agreements explicitly contemplate any sale of Catalina and/or its 2 assets. As Paragraph 9.6 of the SRA states
3 Notwithstanding the terms set forth in Paragraph 5 of the 4 Agreement, in the event of a Sale of the Company (as hereinafter defined), Representative shall continue to serve as the Company’s 5 sales representative pursuant to the terms in the Agreement for a period of at least six (6) months after the date of the closing of a Sale 6 of the Company, After such six (6)-month period, Representative 7 may terminate this Agreement for convenience upon ninety (90) days written notice to the Company. For purposes of this 8 Agreement, "Sale of the Company" means . . . or (b) the direct or indirect sale or transfer, in any single transaction or series of 9 transactions, of all or substantially all of the assets of the Company.” 10 Paragraph 5.5 of the CA states: “Notwithstanding the terms set forth in Section 5.1, in the event of a Sale of the Company (as hereinafter 11 defined), Consultant and Hanzal shall continue to provide the Services for a period of at least six (6) months after the date of the 12 closing of a Sale of the Company. After such six (6)-month period, 13 Consultant may terminate this Agreement for convenience upon ninety (90) days written notice to the Company. For purposes of this 14 Agreement, "Sale of the Company" means . . . (b) the direct or indirect sale or transfer, in any single transaction or series of 15 transactions, of all or substantially all of the assets of the Company. 16 17 The Court finds that the Agreements clearly presume that, for at least six months after any sale of Catalina, Catalina’s products would still be available for GGR and Hanzal to sell in the Assigned 18 Territory, regardless of who owned them. Yet, this was not the case as Nekoosa, Catalina’s buyer, 19 20 bought Catalina’s assets and refused to assume the terms of the Agreements. Thus, Catalina’s failure to ensure that its products were available for GGR and Hanzal constitute a material breach 21 of the Agreements. 22 23 The Court cannot identify, nor does Catalina point to any provisions in the Agreements that required GGR and Hanzal to renegotiate the terms of the Agreements with any buyer of 24 Catalina and its assets. The Agreements are valid, complete, and unambiguous. Paragraph “10.1 25 26 Amendment” of the CA provides that “[a]ll amendments or modifications of this Agreement shall be in writing and shall be signed by each of the parties hereto.” Yet, Catalina has not put forth any 27 / / / 28 1 facts demonstrating that it, GGR, and Hanzal attempted to amend the Agreements pursuant to 2 these paragraphs so as to invoke a reasonable dispute over these provisions. 3 2. Catalina’s Affirmative Defenses Fail 4 Finally, Catalina fails to show that its material breach would be entitled to either an 5 affirmative defense of frustration of purpose or impossibility of performance. Catalina contends 6 that it was a basic and foundational assumption of the parties that Nekoosa would assume the 7 Agreements. For Catalina, the principal purpose of the Agreements was to secure Hanzal’s services 8 to sell their products and to have such services continue into the post-acquisition period for 9 Hanzal’s benefit. A frustration of this purpose occurred, however, when Nekoosa refused to 10 assume the Agreements because Nekoosa determined that it would be unable to appoint GGR as 11 an exclusive distributor in the applicable territory pursuant to the Agreements. Further, because 12 Catalina sold its assets to Nekoosa, it was impossible for Catalina to perform under the 13 Agreements. 14 Nevada recognizes frustration of purpose as a valid defense to breach of contract claims. 15 In Graham v. Kim, the Nevada Supreme Court stated that “[t]he doctrine of commercial frustration 16 applies to discharge a party’s contractual obligation when ‘performance remains possible but the 17 expected value of performance to the party seeking to be excused has been destroyed by a 18 fortuitous event, which supervenes to cause an actual but not literal failure of consideration.’” 899 19 P.2d 1122, 1124 (Nev. 1995) (quoting Lloyd v. Murphy, 153 P.2d 47, 50 (Nev. 1944)). Unlike the 20 Restatement (Second) of Contracts § 265,3 however, Nevada requires that the event giving rise to 21 frustration of purpose be unforeseeable. In Graham, the Supreme Court of Nevada declined to 22 apply the defense of frustration of purpose to a real estate transaction where the subject property 23 was destroyed in a fire, because the buyers’ purchase of fire insurance demonstrated that they 24 foresaw the possibility of this occurrence. Id. 25 / / /
26 3 According to the Restatement (Second) of Contracts § 265, frustration of purpose occurs when “after a 27 contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made.” When such an event occurs, 28 performance under the contract is excused “unless the language or circumstances [of the contract] indicate the contrary.” Id. 1 Separately, under Nevada law, the defense of impossibility is available to a promisor where 2 his performance is made impossible or highly impractical by the occurrence of unforeseen 3 contingencies, but if the unforeseen contingency is one which the promisor should have foreseen, 4 and for which he should have provided, this defense is unavailable to him. See Nebaco, Inc. v. 5 Riverview Realty Co., 482 P.2d 305, 307 (Nev. 1971). Nevada law follows Restatement (Second) 6 of Contracts § 261, in explaining that, “in order for a supervening event to discharge a duty . . . the 7 non-occurrence of that event must have been a basic assumption on which both parties made the 8 contract.” Cashman Equip. Co. v. West Edna Assocs., 380 P.3d 844, 852 (Nev. 2016). Thus, 9 foreseeability is a critical consideration under both defenses. 10 The Agreements contain provisions that contemplate the sale of Catalina, thus indicating 11 that it was foreseeable that Catalina could be sold. The Agreements, however, do not explicitly 12 contemplate what the parties would do if Catalina failed to secure products for GGR and Hanzal 13 to market and sell because of a buyer’s refusal to assume the Agreements. That said, Catalina 14 concedes that it was aware before it sold its assets to Nekoosa that Nekoosa would not assume the 15 Agreements, thus it was foreseeable, before Catalina was sold to Nekoosa, that Nekoosa would 16 decline to assume the Agreements. E.g., ECF No. 73 at 16 (“Even throughout negotiations, the 17 buyer never notified the Dwormans that it would not assume GGR and/or Hanzal's Agreements 18 until right before closing.” (emphasis added)).4 Therefore, it was foreseeable that, as a result of 19 Nekoosa’s intention to decline to assume the Agreements, Nekoosa would decline to provide 20 Catalina the products necessary to comply with the Agreements. 21 Therefore, the Court concludes that Catalina’s breach of contract claims fails as a matter 22 of law. Instead, the Court finds that it was Catalina that breached the Agreements by failing to 23 make its products available for GGR and Hanzal to sell. 24 3. Damages Owed to GGR and Hanzal 25 “Damages for total breach . . . awards the non-breaching party a monetary award sufficient 26 to place that party in the position it expected to find itself had all parties honored the contract.” 27 28 4 According to the Dwormans, Hanzal was immediately informed about Nekoosa’s intent to not assume the Agreements. 1 Cain v. Price, 415 P.3d 25, 30 (Nev. 2018). “As a general rule, a party cannot recover damages for 2 loss that he could have avoided by reasonable efforts.” Conner v. S. Nevada Paving, Inc., 741 P.2d 3 800, 801 (Nev. 1987). “[T]he burden is upon the party whose wrongful act caused the damages 4 complained of to prove anything in diminution of the damages, or in other words, that the damages 5 might have been lessened by reasonable diligence on the part of the aggrieved party.” Cobb v. 6 Osman, 433 P.2d 259, 263 (Nev. 1967). 7 The parties dispute the amount of damages Catalina would owe GGR and Hanzal for its 8 breach of the Agreements. In total, GGR and Hanzal seek $967,902.69 for Catalina’s breach. As 9 to the SRA, GGR argues that Catalina’s breach has resulted in $718,302.69 in damages. This 10 amount, according GGR, is based on the commissions payable on the net annual sales quotas, as 11 provided in Exhibit A of the SRA, and paragraph 6 of the SRA, titled “Early Termination 12 Payment.” According to GGR,
13 [u]nder paragraph 4 of the SRA, once GGR exceeds a monthly sales 14 threshold of $250,000 ($3 million annualized), it is entitled to payment of 5% of the Net Invoice Price. (Id. at p. 29.) Thus, based 15 on Net Annual Sales Quotas of $4.5 million, $6 million, and $8 million for 2018, 2019, and 2020, respectively, GGR’s SRA 16 damages are calculated as follows: 17 2018 Commissions = ($4,500,000 - $3,000,000) x 5% = $75,000 18 2019 Commissions = ($6,000,000 - $3,000,000) x 5% =$150,000 2020 Commissions = ($8,000,000 - $3,000,000) x 5% = $250,000 19 Subtotal $475,000 20 Less 2018 Catalina Commission Payments ($6,697.31) 21 Total SRA Commissions $468,302.69 Plus Early Termination Payment per SRA Paragraph 6 $250,000 22
23 Total Damages for Breach of SRA $718,302.69
24 ECF No. 71 at 7-8. GGR separately contends that Catalina’s breach of the CA has resulted in 25 $249,600 in damages to it and Hanzal. The CA obligated Catalina to pay GGR $10,400 a month 26 until at least December 31, 2020 – the earliest date that the SRA could be properly terminated. 27 Catalina made its last payment, prior to terminating the Agreements, under the CA in December 28 2018. Thus, GGR is owed monthly payments from January 2019 through December 31, 2020. 1 Catalina disputes that GGR and Hanzal are owed either amount in damages under the 2 Agreements. First, GGR refused to mitigate its potential damages by failing to renegotiate the 3 Agreements with Nekoosa after they learned that Nekoosa would not be assuming the Agreements. 4 Second, if damages are owed, they should be limited to only one year based on Catalina’s right to 5 terminate the Agreements pursuant to paragraph 9.2 of the SRA. This paragraph allowed Catalina 6 to terminate the SRA, if GGR failed to satisfy at least 93 percent of the applicable quota for the 7 pertinent year’s annual sales quota. GGR and Hanzal’s performance between November 2017 and 8 February 2018, the months prior to the March 2018, indicated that GGR and Hanzal were not going 9 to meet the sales quota for that year. 10 The Court concludes that genuine issues of fact exist to the amount of damages owed to 11 GGR and Hanzal for Catalina’s breach of the agreements. The Court first rejects Catalina’s 12 argument that GGR and Hanzal’s failure to renegotiate the terms of the Agreements in and of itself 13 constitutes a failure to mitigate damages. For the reasons stated above, GGR and Hanzal had no 14 contractual duty to renegotiate the terms of the Agreements, and they also had no duty to help 15 mitigate Catalina’s breaching conduct. See Conner, 741 P.2d at 801 (“The rule of mitigation of 16 damages begins when the breach is discovered.”). The Court also rejects Catalina’s contention that 17 damages should be limited up to only one year based on Catalina’s right to terminate the 18 Agreements pursuant to paragraph 9.2 of the SRA. Even assuming the facts in Catalina’s favor, 19 the Court concludes that a reasonable jury could not find that GGR’s alleged failure to satisfy at 20 least 93% of the applicable sales quota is solely attributable to any alleged conduct by GGR that 21 led to the lack of sales. It is undisputed that by March 2018, Catalina no longer had any products 22 for GGR and Hanzal to sell, therefore it is reasonable to assume that that had an impact on the 23 GGR and Hanzal’s ability to meet the sales quota. The Court therefore agrees with GGR and 24 Hanzal that damages under the SRA should be calculated based on the commissions payable on 25 the net annual sales quotas and the “Early Termination Payment” paragraph of the SRA. The Court 26 also agrees that damages under the CA should be calculated based on the monthly payment owed 27 from January 2019 through December 31, 2020. 28 / / / 1 That said, the Court finds that, assuming the facts in Catalina’s favor, there are factual 2 issues that go to the issue of damages. First, as to the commission calculation, GGR and Hanzal’s 3 sales were not on track to meet the net annual quota for 2018. Second, there is a genuine issue of 4 fact as to whether GGR and Hanzal failed to mitigate their damages after they were informed of 5 Nekoosa’s intent to not assume the Agreements. According to the Dwormans, Hanzal refused to 6 entertain Nekoosa’s offers, failed to answer Nekoosa’s important questions, and failed to negotiate 7 at all with Nekoosa. GGR and Hanzal dispute these facts. It is, however, improper for the Court to 8 resolve genuine factual disputes or make credibility determinations at the summary judgment 9 stage. 10 The Court therefore grants GGR and Hanzal summary judgment on this claim, and the 11 issue regarding the amount of damages owed to them for Catalina’s breach shall proceed to trial. 12 ii. Breach of Implied Covenant of Good Faith and Fair Dealing 13 (Third Cause of Action) 14 The Court grants GGR and Hanzal summary judgment on this claim. 15 As a preliminary matter, Catalina contends that this claim is not based on tortious breach 16 but on a contractual breach. See Hilton Hotels Corp. v. Butch Lewis Prods., Inc., 808 P.2d 919, 17 922–23 (Nev. 1991) (explaining the difference between the two claims). GGR and Hanzal’s Reply 18 does not dispute this contention; therefore, the Court applies the law for contractual breach to this 19 claim. 20 “A contractual breach of the implied covenants of good faith and fair dealing occurs 21 “[w]here the terms of a contract are literally complied with but one party to the contract 22 deliberately countervenes the intention and spirit of the contract.” Shaw v. CitiMortgage, Inc., 201 23 F. Supp. 3d 1222, 1252 (D. Nev. 2016) (quoting Hilton Hotels Corp., 808 P.2d at 923-24). 24 “Establishing such a breach of the implied covenant depends upon the nature and purposes of the 25 underlying contract and the legitimate expectations of the parties arising from the contract.” Id. 26 “As such, a breach of the implied covenants of good faith and fair dealing is ‘limited to assuring 27 compliance with the express terms of the contract, and cannot be extended to create obligations 28 not contemplated by the contract.’” Id. (quoting McKnight v. Torres, 563 F.3d 890, 893 (9th Cir. 1 2009)). “It neither alter[s] [] specific obligations set forth in the contract nor add[s] duties 2 independent of the contractual relationship.” McKnight, 563 F.3d at 893. Separately, “[i]t is well 3 established that a claim alleging breach of the implied covenants of good faith and fair dealing 4 cannot be based on the same conduct establishing a separately pled breach of contract claim.” Id. 5 At bottom, Catalina’s claim is that GGR and Hanzal’s failure to renegotiate the Agreements 6 with Nekoosa, after Nekoosa bought Catalina’s assets, constituted a breach of the implied 7 covenants of good faith and fair dealing. The Court disagrees. Nothing in the Agreements required 8 that GGR and Hanzal renegotiate any of the Agreements’ terms with Nekoosa. As such, the Court 9 finds that Catalina’s claim goes beyond GGR and Hanzal’s alleged failure to comply with the 10 express terms of the Agreements and is based on the creation of obligations not contemplated by 11 the Agreements. See Shaw, 201 F. Supp. 3d at 1252. Because Catalina fails to show where in the 12 Agreements GGR and Hanzal were required to renegotiate the terms of the Agreements, this claim 13 fails. Separately, this claim also fails because GGR and Hanzal’s alleged conduct is “based on the 14 same conduct establishing a separately pled breach of contract claim.” McKnight, 563 F.3d at 893. 15 Thus, the Court grants GGR and Hanzal summary judgment on this claim. 16 iii. Unjust Enrichment (Fourth Cause of Action) 17 The Court grants GGR and Hanzal summary judgment as to this claim. 18 Unjust enrichment is a theory of restitution in which a plaintiff confers a benefit and seeks 19 payment of “as much as he . . . deserve[s]” for that benefit. Certified Fire Prot. Inc. v. Precision 20 Constr., 283 P.3d 250, 257 (Nev. 2012) (alteration in original). “Unjust enrichment has three 21 elements: [(1)] the plaintiff confers a benefit on the defendant, [(2)] the defendant appreciates such 22 benefit, and [(3)] there is acceptance and retention by the defendant of such benefit under such 23 circumstances that it would be inequitable for him to retain the benefit without payment of the 24 value thereof.” Nautilus Ins. Co. v. Access Med., LLC, 482 P.3d 683, 688 (Nev. 2021). “An action 25 based on a theory of unjust enrichment is not available when there is an express, written contract, 26 because no agreement can be implied when there is an express agreement.” Leasepartners Corp. 27 v. Robert L. Brooks Tr. Dated Nov. 12, 1975, 942 P.2d 182, 187 (Nev. 1997). 28 / / / 1 Catalina contends that its unjust enrichment claim should not be dismissed. This is because 2 the terms of the Agreements do not provide for a situation in which Defendants completely fail to 3 perform, especially under the circumstances where the new buyer, to no party’s knowledge, would 4 not assume the Agreements with the acquisition of Catalina. Further, Hanzal, while under a 5 contractual non-compete and while still being paid by Catalina, entered into business with a direct 6 competitor of Catalina. Accordingly, despite Defendants not taking any steps to perform since 7 March 2018, including negotiating with the new buyer to continue to sell Catalina's products, 8 Catalina continued to pay Defendants the Consulting Fee through December 2018.5 The 9 Consulting Fee was to be paid “[a]s the sole consideration for providing the Services,” and the 10 Agreements did not consider ceasing payment for failed performance. Accordingly, because the 11 Agreements did not provide for this situation, Catalina’s claim for unjust enrichment can stand. 12 GGR and Hanzal disagrees, arguing that Catalina’s unjust enrichment claim fails because 13 there is a full and adequate remedy at law available to Catalina pursuant to the Agreements. 14 Catalina ignores that the sale of its assets, and nothing else, prevented GGR’s performance under 15 the Agreements. Similarly, GGR cannot be charged with Catalina’s failure to address the 16 consequences of an asset sale in the event Nekoosa refused to assume the Agreements. Finally, 17 Catalina’s reference to GGR’s alleged violation of a “contractual non-compete compete while still 18 being paid by Catalina” only highlights the contractual relationship between the parties and why 19 the unjust enrichment claim must be dismissed. 20 The Court finds that Catalina’s unjust enrichment claim fails as a matter of law. First, the 21 Agreements explicitly account for a situation where Defendants fail to comply with any of its 22 obligations under the Agreements, including failing to market or sell products and any alleged 23 violation of the non-compete agreement. See Leasepartners, 942 P.2d at 187. Second, to the extent 24 that this claim is based on Catalina continuing to pay Hanzal pursuant to the CA until December 25 2018, it should also fail. This is because Catalina was paying Hanzal pursuant to the Agreements, 26 which it concedes it did not terminate until December 2018, because of GGR and Hanzal’s alleged 27 28 5 Catalina has provided testimony that it was advised by its counsel “and out of abundance of caution” to continue to pay Hanzal “sums through December of 2018 when Catalina effectively terminated the Agreements.” 1 failure to meet the sails quota. Presumably, if Hanzal had not breached the Agreements first and 2 GGR and Hanzal were not not performing, Catalina could have been able to recover damages 3 pursuant to the Agreements. Yet, as the Court concluded above concerning Catalina’s breach of 4 contract claim, Catalina was the one breached the Agreements first, not GGR and Hanzal.6 5 Ultimately, Catalina fails to show that this claim seeks an equitable return of value beyond the 6 terms of the Agreements. 7 Accordingly, summary judgment is granted on this claim as a matter of law. 8 iv. Negligent Misrepresentation (Fifth Cause of Action) 9 The Court denies GGR summary judgment on this claim. 10 Under Nevada law, to assert a claim of negligent misrepresentation, a plaintiff must 11 establish that Defendants “in the course of [their] business, profession or employment, or in any 12 other action in which [they] have a pecuniary interest, supplie[d] false information for the guidance 13 of others in their business transactions” and caused pecuniary loss by the plaintiff’s “justifiable 14 reliance upon the information,” if Defendants “fail[ed] to exercise reasonable care or competence 15 in obtaining or communicating the information.” Barmettler v. Reno Air, Inc., 956 P.2d 1382, 16 1387 (Nev. 1998). 17 Defendants assert that this claim fails because it does not identify any alleged 18 misrepresentation of fact upon which Catalina relied. Catalina also fails to establish reliance 19 because each of these alleged “misrepresentations” involve something that occurred after Catalina 20 and GGR entered into the Agreements. Nekoosa’s unwillingness to assume the Agreements has 21 nothing to do with anything GGR or Hanzal said or did before the parties entered the Agreements. 22 Similarly, Hanzal’s “expressed desire to continue his relationship with” Catalina after being told 23 that Catalina was exploring a sale transaction was demonstrably true because GGR entered into 24 the Agreements with Catalina despite being informed of a potential sale of Catalina. Additionally,
25 6 While not raised by GGR and Hanzal and not relied on by the Court to resolve this claim, the Court notes 26 that Nevada recognizes the affirmative defense of voluntary payment to a claim of unjust enrichment. See Nevada Ass’n Servs., Inc. v. Eighth Jud. Dist. Ct., 338 P.3d 1250, 1254 (Nev. 2014). This “is an affirmative defense that 27 provides that one who makes a payment voluntarily cannot recover it on the ground that he was under no legal obligation to make the payment. The voluntary in the voluntary payment doctrine does not entail the mere payment 28 of the bill or fee. Instead, it considers the willingness of a person to pay a bill without protest as to its correctness or legality.” Id. at 1253 (internal quotation marks and citations omitted). 1 GGR and Hanzal’s communications with the buyer of Catalina’s assets is irrelevant because those 2 communications occurred after GGR, and Catalina executed the Agreements. 3 Catalina contends that it relied on GGR and Hanzal’s representations that: (1) they wished 4 to continue their relationship with Catalina despite a potential asset sale and (2) GGR and Hanzal 5 would continue in good faith to perform their contractual duties despite such sale. GGR and Hanzal 6 did neither, including by failing to renegotiate the Agreement with Nekoosa. 7 Assuming the facts in Catalina’s favor, the Court finds that there are material facts in 8 dispute that should go before a jury regarding this claim. The amended complaint alleges that GGR 9 and Hanzal (1) knew about the possible acquisition of Catalina’s assets prior to entering into the 10 applicable Agreements; and (2) Hanzal expressed a desire to continue his relationship with 11 Catalina despite the possible acquisition. According to the Dwormans, Hanzal advised that the 12 Agreements were not to affect or be construed against Catalina and were only to give him an option 13 to terminate the Agreements should he not like working with the new buyer. The Dwormans thus 14 sought to ensure that the contract language gave Hanzal the opportunity to terminate the 15 Agreements after a six-month commitment to the new buyer. In entering the Agreements, Catalina 16 detrimentally relied upon GGR and Hanzal’s representations that they wished to continue their 17 relationship with Catalina despite a potential asset sale and that GGR and Hanzal would continue 18 in good faith to perform their contractual duties despite such sale. Instead, GGR and Hanzal failed 19 to negotiate or entertain offers posed by the Nekoosa, instead, seeking additional compensation 20 under the Agreements in which they failed to render services in return. Moreover, Hanzal refused 21 to entertain Nekoosa’s offers, failed to answer Nekoosa’s important questions, and failed to 22 negotiate at all with Nekoosa. GGR and Hanzal dispute these facts. As the Court noted above, it 23 is improper for it to resolve genuine factual disputes or make credibility determinations at the 24 summary judgment stage. 25 Thus, the Courts denies GGR and Hanzal summary judgment on this claim, and it shall 26 proceed to trial. 27 v. Declaratory Relief (First Cause of Action) 28 Finally, the Court grants GGR and Hanzal summary judgment on this claim. 1 GGR and Hanzal contend that this declaratory relief claim must fail because a request for 2 declaratory judgment cannot be maintained as a separate substantive claim. The Court finds that 3 this contention lacks merit, as the Court has previously rejected similar arguments. See, e.g., Bank 4 of New York Mellon v. Foothills at S. Highlands Homeowners Ass'n, No. 17-CV-01918, 2019 5 WL 1440254, at *3 (D. Nev. Mar. 30, 2019) (finding that the Declaratory Judgment Act, 28 U.S.C. 6 §§ 2201–2202, did not prohibit asserting declaratory relief as a stand-alone claim, and that the 7 Ninth Circuit has only concluded that the Act did not create an independent basis for jurisdiction). 8 There is no dispute that the Court has diversity jurisdiction to hear this case. The Court therefore 9 proceeds to address this claim on the merits. 10 As Nevada substantive law applies, the Court employes the elements for this claim 11 pursuant Nevada’s Uniform Declaratory Judgment Act. Accordingly, “[t]o obtain declaratory 12 relief, a plaintiff must establish four elements: (1) the existence of a justiciable controversy, such 13 that a claim of right is asserted against one who has an interest in contesting the claim; (2) the 14 parties have adverse interests; (3) the party seeking relief has a legally protectable interest in the 15 controversy; and (4) ripeness of the controversy.” MB Am., Inc. v. Alaska Pac. Leasing Co., 367 16 P.3d 1286, 1291 (Nev. 2016). 17 In turn, Defendants argue that, even if there is a standalone claim, Catalina’s claim fails 18 because both frustration of purpose and impossibility of performance defenses require that the 19 event or condition relied upon to excuse performance be unforeseeable. They assert that Catalina’s 20 inability to perform was caused by its own voluntary sale of its assets to Nekoosa. For the reasons 21 state in the above in the Court analysis regarding Catalina’s affirmative defenses to breaching the 22 Agreements, it finds that this claim fails. 23 Therefore, the Court grants summary judgment as to this claim. 24 25 V. CONCLUSION 26 IT IS THEREFORE ORDERED that Petitioners-Counter Claimants Global Graphic 27 Resources LLC and Daryl K. Hanzal’s (ECF No. 71) MOTION for Partial Summary Judgment is 28 GRANTED in part and DENIED in part. The Court dismisses Respondent-Counter Defendant’s 1 Triunfo, Inc. claims for declaratory relief, breach of contract, breach of the implied covenant of 2 good faith and fair dealing, and unjust enrichment. The question of damages related to Catalina’s 3 breach of the Agreements and Respondent-Counter Defendant’s Triunfo, Inc.’s negligent 4 representation claim shall proceed to trial. 5 IT IS FURTHER ORDERED that the Parties have thirty days from the date of this order 6 to file a Proposed Joint Pretrial Order. 7 DATED: March 31, 2023.
8 __________________________________ 9 RICHARD F. BOULWARE, II UNITED STATES DISTRICT JUDGE 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28