1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 M.A. SILVA CORKS USA, LLC, et al., Case No. 22-cv-04345-AMO
8 Plaintiffs, ORDER DENYING MOTION FOR 9 v. LEAVE TO FILE COUNTERCLAIMS, AND GRANTING IN PART AND 10 M.A. SILVA HOLDINGS, INC., et al., DENYING IN PART PLAINTIFFS’ MOTION FOR SUMMARY 11 Defendants. JUDGMENT
12 Re: Dkt. Nos. 77, 89
13 14 This case is a contract dispute related to cork sales. Before the Court are Defendants’ 15 motion for leave to file counterclaims and Plaintiffs’ motion for partial summary judgment. 16 Having read the papers filed the parties and carefully considered their arguments therein and those 17 made at the hearing, as well as the relevant legal authority, the Court hereby DENIES Defendants’ 18 motion for leave to file counterclaims, and GRANTS IN PART and DENIES IN PART 19 Plaintiffs’ motion for partial summary judgment. 20 I. BACKGROUND 21 A. Factual Background 22 Plaintiffs Neil Foster and Defendant M.A. Silva Holdings, Inc. (“Holdings”) have jointly 23 and equally owned Plaintiff M.A. Silva Corks USA, LLC (“Corks USA”), a wine cork distribution 24 business based in Santa Rosa, California, for 23 years.1 Cortiças Ans. (ECF 50) ¶¶ 2, 3, 10, 12. 25 Foster has been Corks USA’s sole manager since its formation, id. ¶ 10, and Manuel Alves da 26 1 In a motion for summary judgment, the Court views the facts in the light most favorable to the 27 non-moving party and gives it the benefit of all reasonable inferences to be drawn from those 1 Silva (“M. Silva”) is the president of Holdings. M.S. Ans. (ECF 76) ¶¶ 12-13; J.S. Decl. (ECF 88- 2 3) ¶ 6. 3 Foster and Holdings entered into three agreements: the Operating Agreement for Corks 4 USA, which enables Corks USA to import and sell Cortiças corks in the United States, Cortiças 5 Ans. ¶ 30; Goodrich Decl., Ex. 11; the Employment Agreement between Foster and Corks USA, 6 which lays out Foster’s rights and obligations as Manager, including that he may not purchase or 7 promote corks from any entity except M.A. Silva Cortiças, Lda. (“Cortiças”), Goodrich Decl. 8 (ECF 78), Ex. 12 § 4; and the January 2001 Supply and Distribution Agreement (“SDA”), 9 Cortiças Ans. ¶ 33; Goodrich Decl. Ex. 3, at 1. 10 The SDA states that “[t]he Supplier [Cortiças] hereby appoints the Distributor [Corks 11 USA] as its exclusive (with the exceptions set forth in this Agreement) distributor and marketer 12 for the resale of corks in the United States . . .” and that the “Distributor will be entitled to 13 describe itself as the Supplier’s ‘Exclusive Authorized Distributor’ for corks in the United 14 States . . . [.]” Goodrich Decl., Ex. 3 (“SDA”) § 2. The SDA requires Cortiças to inform Corks 15 USA if it “learn[s] of any new potential customer for corks in the United States,” and pay Corks 16 USA a referral fee if the person becomes a direct customer of Cortiças. SDA § 5.2. The SDA also 17 requires Cortiças to credit or replace defective corks, id. § 3.11, timely deliver corks, and use “all 18 reasonable endeavours to meet the delivery date,” id. §§ 3.2, 3.6. In connection with these rights, 19 Cortiças granted Corks USA a license to use the name “M.A. Silva” in connection with its sale 20 and distribution of corks, including any logo or trademark rights related to the name. Id. § 9. 21 Cortiças is a Portuguese entity jointly owned and operated by M. Silva and José Duarte 22 Tavares da Silva (“J. Silva”), with M. Silva serving as president and founder, and J. Silva serving 23 as CEO. Cortiças Ans. ¶¶ 11, 13, 14; M.S. Ans. ¶ 13; J.S Ans. (ECF 59) ¶ 14. Cortiças is the sole 24 owner of Holdings. Cortiças Ans. ¶ 12; J.S. Decl. ¶ 6. Holdings is solely managed by M. Silva 25 and has no board of directors or employees. Id. 26 Iberian Cork International Ltd. (“Iberian Cork”) is a limited liability company (“LLC”) 27 organized under the laws of Malta owned and operated by M. Silva (60%) and J. Silva (40%). J.S. 1 19, 3:1; M.S. Ans. ¶ 16. Cork Partners International Ltd. (“Cork Partners”) is a separate Maltese 2 LLC owned and operated by M.S. (60%) and J.S. (40%). J.S. Ans. ¶ 15; J.S. Decl. ¶ 7. Cork 3 Partners is a holding company formed solely to hold Iberian Cork shares, and otherwise has no 4 assets. Goodrich Decl., Ex. 8 at 6:11-18. Cork Partners shares document storage, leadership, and 5 some officers with Cortiças. Goodrich Decl. Ex. 9 at 10:21-11:15. 6 From 2018 through 2022, Cortiças and Iberian Cork sold 48 million corks at a cost of 7 $8,881,843 to Scott Laboratories, Inc. (“Scott Labs”), a direct competitor of Corks USA, without 8 informing Foster and Corks USA. Goodrich Decl. Ex. 5 at 4:20-5:23; Ex. 7 at 3:1-5:13, 11:2-14; 9 Ex. 13 ¶¶ 2, 6-7. At least one reason why J. Silva formed Iberian Corks was to sell corks in the 10 USA or Canada without involving or having to pay anything to Corks USA. Goodrich Decl., Ex. 11 7 at 10:14-20, 11:2-28. 12 In late 2019, Cortiças and Scott Labs entered into a Confidentiality Agreement regarding 13 the distribution of corks in North America. Goodrich Decl., Ex. 7 at 15:7-22, 16:10-17; Ex. 13 ¶ 14 15. During discussions about a potential sale of Corks USA, Cortiças provided Scott Labs with 15 confidential material, including Corks USA’s Profit & Loss Statements, Balance Sheet, and 16 Statements of Income. Goodrich Decl., Ex. 13 ¶ 16. Foster and Corks USA were not aware of the 17 transactions with Scott Labs. Goodrich Decl., Ex. 10 (“Foster Decl.”) ¶ 12. 18 Beginning in 2015, Cortiças routinely delivered cork shipments late or without sufficient 19 time for Corks USA to verify the quality. Foster Decl. ¶ 10. 20 B. Procedural Posture 21 On July 27, 2022, Foster and Corks USA (collectively, “Plaintiffs”) filed a complaint 22 against Cortiças, Holdings, M. Silva and J. Silva, Cork Partners, and Iberian Cork (collectively, 23 “Defendants”). ECF 1. Plaintiffs filed the operative complaint, the Second Amended Complaint, 24 on March 15, 2023. ECF 61. Therein, Plaintiffs allege multiple RICO violations, fraud, 25 conspiracy to commit fraud, tortious interference with contract, tortious breach, breach of 26 fiduciary duties, and breach of contract. Id. at 23-35. 27 On August 24, 2023, Plaintiffs moved for partial summary judgment on their causes of 1 fiduciary duty (count nine) and breach of contract (count ten). ECF 77 (“MSJ”). On November 1, 2 2023, approximately a month after Defendants opposed the motion for summary judgment, 3 Defendant Holdings filed a motion for leave to file counterclaims. ECF 89. 4 The Court first addresses the motion for leave to file counterclaims before considering the 5 motion for summary judgment. 6 II. MOTION FOR LEAVE TO FILE COUNTERCLAIMS 7 Defendant Holdings moves for leave to amend the scheduling order and file counterclaims 8 against Plaintiffs Foster and Corks USA. ECF 89. Additional procedural background is necessary 9 to analyze the merits of Holdings’ motion. 10 A. Procedural Background 11 In July 2019, M. Silva sent Foster a letter terminating Foster as the Manager of Corks USA 12 after a disagreement about Foster’s Employment Agreement.2 Villagomez Decl. (ECF 89-1) at 16. 13 In August 2019, Foster brought claims against Holdings in San Francisco County Superior Court 14 seeking declaratory relief regarding the interpretation of his Employment Agreement (“First State 15 Court Action”). Id. at 2. Foster voluntarily dismissed the First State Action on July 18, 2022, and 16 initiated the present action (“Federal Action”) against Holdings, Cortiças, the Silvas, Iberian, and 17 Cork Partners. Id. at 80; ECF 1. On July 19, 2022, Foster withdrew and paid himself $4.5 million 18 from Corks USA’s bank account. Villagomez Decl. ¶ 4, Ex. 2. Foster’s payment to himself 19 underlies the five claims that Holdings seeks leave to bring. 20 On October 26, 2022, this Court entered a Scheduling Order setting a January 13, 2023, 21 deadline to amend pleadings. ECF 48. Holdings and Cortiças filed their answer to the complaint 22 on November 18, 2022. ECF 50. J. Silva, Iberian, and Cork Partners answered on February 28, 23 2023. ECF 59. M. Silva answered on August 17, 2023. ECF 76. None of the responsive 24 pleadings included counterclaims. 25 On March 23, 2023, eight months after Plaintiffs filed the Federal Action, and four months 26 2 These are the factual allegations presented by Holdings in its motion for leave to file 27 counterclaims and considered by the Court for purposes of this motion. These are not the factual 1 after Holdings filed its answer, Holdings filed a complaint in California Superior Court against 2 Foster and Corks USA (“Second State Action”) for breach of contract, breach of fiduciary duty, 3 violation of California Penal Code Section 496, unjust enrichment, and “removal of manager for 4 cause” – all claims arising from Foster’s $4.5 million withdrawal. Villagomez Decl., Ex. 2 at 73; 5 Shamonki Decl., Ex. 4.3 Holdings served Foster two months later in May 2023. Shamonki Decl., 6 Ex 5 at 5. Foster and Corks USA filed a demurrer on June 30, 2023, arguing that the claims 7 presented in the Second State Action were compulsory counterclaims in the Federal Action. Id., 8 Ex. 3. On August 3, 2023, the state court sustained Plaintiffs’ demurrer without leave to amend. 9 Id., Ex. 7. The state court found that the causes of action in the Second State Action were related 10 to the claims in the Federal Action as the state action alleged breach of Cork’s Operating 11 Agreement and breaches of fiduciary duties against each Foster and Holdings as co-owners of 12 Corks USA. Id. at 3-4. The state court accordingly found that the allegations were compulsory 13 counterclaims and dismissed the case without leave to amend on August 3, 2023. Id. at 5. The 14 state court entered judgment on September 7, 2023. Id., Ex. 5 at 3. Holdings appealed the 15 dismissal on October 16, 2023. Id. On November 1, 2023, Holdings filed the instant motion for 16 leave to amend the scheduling order and file counterclaims. ECF 89. 17 B. Leave to Amend Pleadings and Scheduling Order 18 A motion for leave to amend the pleadings is generally governed by Federal Rule of Civil 19 Procedure 15(a)(2), which provides that a court should “freely give leave when justice so 20 requires.” However, where, as here, a court has entered a pretrial scheduling order that establishes 21 a deadline for amending the pleadings and that deadline has passed, a party’s ability to amend the 22 pleadings is governed by Rule 16(b). Kamal v. Eden Creamery, LLC, 88 F.4th 1268, 1277 (9th 23 Cir. 2023). 24 Federal Rule of Civil Procedure 16 dictates that a schedule may only be modified for 25 “good cause and with the judge’s consent.” Fed. R. Civ. P. 16(b)(4); see Coleman v. Quaker Oats 26 Co., 232 F.3d 1271, 1294 (9th Cir. 2000). “Good cause” may be shown where pretrial deadlines 27 1 “cannot reasonably be met despite the diligence of the party seeking the extension.” Zivkovic v. S. 2 Cal. Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002) (quoting Johnson v. Mammoth Recreations, 3 Inc., 975 F.2d 604, 609 (9th Cir. 1992)). Although a court may consider prejudice to the party 4 opposing modification of the scheduling order, the “good cause” standard focuses primarily on the 5 diligence of the moving party. In re W. States Wholesale Nat. Gas Antitrust Litig., 715 F.3d 716, 6 737 (9th Cir. 2013) (“Wholesale”) aff’d sub nom. Oneok, Inc. v. Learjet, Inc., 575 U.S. 373 (2015) 7 (citing Johnson, 975 F.2d at 609). If the moving party was not diligent, the inquiry should end, 8 and the motion should be denied. Zivkovic, 302 F.3d at 1087 (citing Johnson, 975 F.2d at 609); 9 see Branch Banking & Tr. Co. v. D.M.S.I., LLC, 871 F.3d 751, 764 (9th Cir. 2017) (“D.M.S.I.”). 10 Holdings moves for leave to file counterclaims against Plaintiffs for violation of California 11 Penal Code section 496, breach of fiduciary duty, breach of contract, unjust enrichment, and 12 “removal of manager for cause” based on Foster allegedly taking $4.5 million from Corks USA in 13 July of 2022 without Holdings’ consent. ECF 89-1 at 128-132. Holdings explains that it did not 14 bring these claims earlier because of its “reasonable belief that its claims did not constitute 15 compulsory counterclaims in the instant action.” ECF 89 at 6-7. Plaintiffs respond that Holdings 16 (1) has not shown good cause to modify the scheduling order under Rule 16; and (2) that the 17 amended pleadings are unduly prejudicial, delayed, and brought in bad faith pursuant to Rule 15. 18 The Court takes up these arguments in turn. 19 1. Good Cause Under Rule 16(b) 20 Parties seeking amendment of a scheduling order typically must show diligence through 21 timely pursuit of their claims. See Wholesale, 715 F.3d at 737 (holding that the district court 22 properly concluded that plaintiffs were not diligent in seeking to amend complaints to add claims 23 that they had known since the beginning of the lawsuit); Zivkovic, 302 F.3d at 1087 (affirming 24 district court’s ruling that plaintiff did not show diligence where he waited four months in seeking 25 to amend the scheduling order); D.M.S.I., 871 F.3d at 765 (defendants were not diligent where 26 they “knew about [the defenses and counterclaims] long before the deadline to amend had 27 passed”). 1 Holdings fails to satisfy the good cause standard of Rule 16(b). ECF 97 at 13-17. They stress that 2 Holdings learned about the potential counterclaims in July of 2022 – the same time Plaintiffs 3 initiated the Federal Action – and before the Court had set a deadline for amending pleadings or 4 Holdings had answered the complaint. Id. at 9, 14-15. 5 Holdings, as it must, acknowledges that it failed to raise these counterclaims in the six 6 months prior to the deadline to amend pleadings, or in the nearly ten months that followed the 7 deadline to seek leave to amend. ECF 89 at 9-10. Instead, it explains that it believed that the 8 claims were not compulsory counterclaims, and “re-evaluated its options and litigation strategy 9 after Plaintiffs’ demurrer in the State Court Action was sustained.” Id. at 6-7, 17. However, a 10 change in litigation strategy does not constitute good cause when the facts giving rise to the claims 11 were known to Holdings for approximately 16 months. See, e.g., Napear v. Bonneville Int’l Corp., 12 No. 2:21-CV-01956-DAD-DB, 2023 WL 4747623, at *5 (E.D. Cal. July 25, 2023) (“a mere 13 change in litigation strategy is insufficient to constitute good cause” and plaintiff was not diligent 14 where he waited 14 months after discovery of evidence to file a motion for leave to amend). 15 Even if the Court were to credit Holdings’ mistaken belief that the claims were not 16 compulsory counterclaims, the state court dismissed Holdings’ claims without leave to amend on 17 August 3, 2023, explicitly stating that the claims were compulsory counterclaims to the causes of 18 action in the Federal Action. Shamonki Decl., Ex. 7 at 3-5. Holdings then waited another three 19 months, until November 1, 2023, to move to amend the scheduling order and file counterclaims. 20 At the hearing, Holdings stated only that it was considering next steps during that time. Notably, 21 the proposed counterclaims are nearly identical to the claims brought in the Second State Court 22 Action. See ECF 89-1 at 121-132; ECF 99-4 at 3-15. Considering this significant delay in 23 seeking amendment as well as the state court’s express finding that the claims at issue were 24 compulsory counterclaims to this Federal Action, the Court finds that Holdings fails to show 25 diligence in pursuing these claims against Foster and Corks USA, and thus fails to show good 26 cause to modify the Scheduling Order. 27 2. Leave to Amend Under Rule 15 1 on Federal Rule of Civil Procedure 15, which states that the court should “freely grant leave” to 2 amend pleadings “when justice so requires.” Fed. R. Civ. P. 15(a). However, the Ninth Circuit 3 has made clear that “when a party seeks to amend a pleading after the pretrial scheduling order’s 4 deadline for amending the pleadings has expired, the moving party must satisfy the ‘good cause’ 5 standard of Federal Rule of Civil Procedure 16(b)(4),” as discussed above. Wholesale, 715 F.3d at 6 737; see Coleman, 232 F.3d at 1294 (holding that the district court correctly addressed leave to 7 amend under Rule 16 as opposed to Rule 15 where it had filed a pretrial scheduling order 8 establishing a deadline for amending pleadings and that deadline had expired). 9 Assuming for the sake of argument that Holdings had showed good cause to modify the 10 scheduling order, it would also need to demonstrate that leave to amend is warranted under Rule 11 15. Johnson, 975 F.2d at 608. Courts consider five factors in determining whether to grant leave 12 to amend: (1) undue delay; (2) bad faith or dilatory motive; (3) prejudice to the opposing party; (4) 13 futility of amendment; and (5) repeated failure to cure deficiencies by amendments previously 14 allowed. Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051-52 (9th Cir. 2003) (citing 15 Foman v. Davis, 371 U.S. 178, 182 (1962)). Of these factors, prejudice “carries the greatest 16 weight.” Id. As prejudice is the most important factor, the Court considers prejudice before 17 turning to the remaining factors. 18 a. Prejudice 19 Holdings argues that Plaintiffs will not suffer undue prejudice because the counterclaims 20 will not change the scope of the litigation,4 these disputes have already been litigated, any 21 discovery will be minimal, and the April 22, 2024, trial date may be maintained.5 ECF 89 at 13- 22 14. Foster and Corks USA contend that if the Court permits Holdings to bring its proposed 23 counterclaims at such a late stage, Plaintiffs will need to spend time and money on a potential 24
25 4 To support this argument, Holdings points out that the state court determined that both actions “concern the same contracts, similar facts, and similar claims.” ECF 89 at 14. Of course, this 26 augurs against Holdings’ argument that it acted diligently in seeking leave, as it shows Holdings’ awareness of the similarity of the claims. 27 1 motion to dismiss; additional written and oral discovery; to reengage experts on Holdings’ 2 damages claims; and to write and argue another motion for summary judgment if they cannot 3 dismiss the matter at the 12(b)(6) stage. ECF 97 at 18. Foster and Corks USA argue that this will 4 make it unlikely that the case timely proceeds to trial. 5 Courts find prejudice to a party where its opponent seeks to add claims requiring additional 6 discovery after the discovery deadline and the parties have already filed dispositive motions. See 7 Jackson v. Bank of Hawaii, 902 F.2d 1385, 1387-88 (9th Cir. 1990) (finding prejudice to opposing 8 party where additional claims “advance different legal theories and require proof of different 9 facts” such that the defendant would have to go through the time and expense of continued 10 litigation); cf. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 188 (9th Cir. 1987) (concluding 11 that the timing of the proposed amendment was not prejudicial where the case was still at the 12 discovery stage, and there was no pretrial conference or trial scheduled). Similarly, courts find 13 undue prejudice where a litigant seeks to shift the focus of the case years after the suit was first 14 filed and shortly before the discovery cutoff, particularly where the shift in legal theories would 15 nullify prior discovery and require additional discovery. See Scognamillo v. Credit Suisse First 16 Bos., LLC, 587 F. Supp. 2d 1149, 1156-57 (N.D. Cal. 2008) (citing cases); see also McGlinchy v. 17 Shell Chem. Co., 845 F.2d 802, 809 (9th Cir. 1988) (affirming district court’s finding of prejudice 18 where the new claims would have “required additional discovery on a wide range of new issues,” 19 including new depositions, and defendants were “entitled to rely on a timely close of discovery 20 and a near-term trial date”). 21 Holdings suggests that because the five counterclaims it moves to file concern similar facts 22 and causes of action, the new claims would not “greatly alter[] the nature of the litigation” or 23 “require [plaintiffs] to [] undertake[], at a late hour, an entirely new course of defense.” ECF 89 at 24 13 (citing Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990)). Not 25 so. If the Court permits the introduction of the proposed counterclaims, Plaintiffs will be required 26 to defend against new claims substantively different from those litigated so far. Moreover, fact 27 discovery closed on June 9, 2023, and expert discovery closed on November 10, 2023. ECF 48, 1 exacerbated where the parties have already conducted substantial discovery, there is a pending 2 motion for summary judgment, and trial is set to begin in a few months. Accordingly, the Court 3 concludes that Plaintiffs will be prejudiced by allowing Holdings to bring counterclaims at such a 4 late stage in the proceedings. 5 b. Undue Delay 6 While prejudice is typically the key factor, “[u]ndue delay is a valid reason for denying 7 leave to amend.” Texaco, Inc. v. Ponsoldt, 939 F.2d 794, 798 (9th Cir. 1991) (citation omitted); 8 see also Acri v. Int’l Ass’n of Machinists & Aerospace Workers, 781 F.2d 1393, 1398 (9th Cir. 9 1986) (holding that “late amendments to assert new theories are not reviewed favorably when the 10 facts and the theory have been known to the party seeking amendment since the inception of the 11 cause of action.”). 12 Holdings argues that it has not unduly delayed in advancing its proposed counterclaims 13 because the case did not become “fully at issue” until M. Silva filed his answer on August 17, 14 2023. ECF 89 at 15. However, Holdings cites no authority for this proposition. Moreover, M. 15 Silva’s answer is irrelevant, as it is Holdings – not M. Silva – that now seeks to file counterclaims, 16 rather than when it answered Plaintiffs’ complaint on November 18, 2022. The timing of M. 17 Silva’s answer also does not change Holdings’ awareness of the existence of the claims since July 18 2022 and failure to move to file the counterclaims until November 2023. Indeed, “[w]hether the 19 moving party knew or should have known facts and theories raised in the proposed amendment at 20 the time it filed its original pleadings is a relevant consideration in assessing timeliness.” Fresno 21 Unified Sch. Dist. v. K.U. ex rel. A.D.U., 980 F. Supp. 2d 1160, 1176 (E.D. Cal. 2013). 22 The only reason that Holdings puts forth as to why it delayed so long is that it believed that 23 the claims should be brought in state court, stating that “any undue delay should be excused by 24 Holdings’ reasonable belief that its claims did not constitute compulsory counterclaims in the 25 instant action.” ECF 89 at 15. Holdings’ misunderstanding of the law is not a valid reason for 26 delay. See Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 392 (1993) 27 (“inadvertence, ignorance of the rules, or mistakes construing the rules do not usually constitute 1 Service, 87 F.3d 339, 345 (9th Cir. 1996) (“A moving party’s inability to acceptably explain its 2 delay may indicate that the delay was undue.”). Moreover, as discussed above, Holdings brought 3 this motion five months after the close of fact discovery, nine days before the close of expert 4 discovery, three months after the state court dismissed its claims on the basis that they were 5 compulsory counterclaims, and ten months after the Scheduling Order deadline to amend 6 pleadings expired. 7 There is no evidence of bad faith, and the parties do not discuss the other factors courts 8 consider in determining whether to grant leave to amend. Given the failure to show good cause to 9 amend the scheduling order, the Court DENIES Holdings’ motion for leave to amend the 10 scheduling order. And given the prejudice to Foster and Corks USA, as well as the undue delay 11 by Defendants in bringing these counterclaims, the Court also concludes that leave to amend is not 12 warranted under Rule 15. See Texaco, Inc., 939 F.2d at 798-99 (affirming denial of leave to 13 amend due to undue delay and prejudice). 14 III. Motion for Summary Judgment 15 The Court next takes up Plaintiffs’ motion for partial summary judgment. 16 A. Summary Judgment Standard 17 Summary judgment shall be granted if the “materials in the record, including depositions, 18 documents, electronically stored information, affidavits or declarations” show that there is “no 19 genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” 20 Fed. R. Civ. P. 56(a), (c). “Material facts” are those which may affect the outcome of the case. 21 See Anderson, 477 U.S. at 248. A dispute as to a material fact is genuine if there is sufficient 22 evidence for a “reasonable jury” to return a verdict for the nonmoving party. Id. The court “may 23 not weigh the evidence or make credibility determinations.” Freeman v. Arpaio, 125 F.3d 732, 24 735 (9th Cir. 1997), overruled on other grounds by Shakur v. Schriro, 514 F.3d 878, 884-85 (9th 25 Cir. 2008). The court must view the facts in the light most favorable to the non-moving party and 26 give it the benefit of all reasonable inferences to be drawn from those facts. Matsushita Elec. 27 Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Olsen v. Idaho State Bd. of Med., 363 1 speculative evidence of specific facts, not sweeping conclusory allegations.” Cafasso, U.S. ex rel. 2 v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1061 (9th Cir. 2011). 3 Plaintiffs argue that they are entitled to judgment as a matter of law on their claims for 4 breach of contract, tortious interference and breach, breach of fiduciary duties, and fraudulent 5 concealment. ECF 77 (“MSJ”). Plaintiffs argue that each Defendant is liable under an alter ego 6 liability theory. The Court considers each claim in turn. 7 B. Breach of Contract 8 A cause of action for breach of contract requires “(1) [the existence of] the contract, (2) 9 the plaintiff’s performance of the contract or excuse for nonperformance, (3) the defendant’s 10 breach, and (4) the resulting damages to the plaintiff.” Richman v. Hartley, 224 Cal. App. 4th 11 1182, 1186 (2014). 12 Corks USA moves for summary judgment on Cortiças’ breach of the 2001 Supply and 13 Distribution Agreement (“SDA”), specifically, the SDA’s exclusivity provision, as well as 14 provisions concerning the quality and timeline for corks delivered. The Court first considers 15 whether Cortiças’ actions violated the exclusivity provision of SDA. 16 1. Exclusivity Provision 17 Corks USA asserts that Cortiças6 violated the exclusivity provision of the SDA by selling 18 corks to Scott Labs without informing or obtaining consent from Corks USA. Defendants do not 19 dispute that the SDA signed by the parties is a valid, enforceable contract, and that Corks USA 20 fulfilled its contractual obligations under the SDA. Defendants also do not dispute that from 2016 21 to 2022, Cortiças sold millions of dollars of cork to Scott Labs, a company that buys and sells 22 corks in the U.S., without informing Corks USA or paying a referral fee. ECF 88 (“Opp.”) at 15, 23 18-19. Instead, Defendants challenge only breach and damages, and argue that this conduct did 24 not violate the exclusivity provision of the SDA because the SDA only prohibited Cortiças from 25 selling M.A. Silva-branded corks to companies seeking to resell “M.A. Silva-branded corks” in 26 6 Corks USA also brings the breach of contract claim against Holdings, Iberian Cork, Cork 27 Partners, and Manuel and Jose Silva under an alter ego theory. The Court discusses that theory of 1 the United States. Id. at 15, 18-19. The parties’ main dispute is thus the interpretation of the 2 SDA’s language. 3 In California, “[t]he language of a contract is to govern its interpretation, if the language is 4 clear and explicit, and does not involve an absurdity.” Cal. Civ. Code § 1638. The “fundamental 5 goal of contract interpretation is to give effect to the mutual intent of the parties as it existed at the 6 time of contracting.” U.S. Cellular Inv. Co. v. GTE Mobilnet, Inc., 281 F.3d 929, 934 (9th Cir. 7 2002); see Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 18-19 (1995) (internal quotations 8 omitted) (same). “When a contract is reduced to writing, this intent ‘is to be ascertained from the 9 writing alone, if possible.’” U.S. Cellular, 281 F.3d at 934 (quoting Cal. Civ. Code § 1639); see 10 also Cal. Civ. Code §§ 1635-55 (codifying these interpretive principles). 11 Typically, courts may not rely on extrinsic evidence “to alter or add to the terms of the 12 writing” of an integrated written agreement. Riverisland Cold Storage, Inc. v. Fresno-Madera 13 Prod. Credit Assn., 55 Cal. 4th 1169, 1174 (2013); see Vons Companies, Inc. v. United States Fire 14 Ins. Co., 78 Cal. App. 4th 52, 59 (2000) (“We do not have the power to create for the parties a 15 contract that they did not make and cannot insert language that one party now wishes were 16 there.”). However, a court may admit parol evidence to construe a contract when the contract 17 language is ambiguous. F.B.T. Prods., LLC v. Aftermath Recs., 621 F.3d 958, 963 (9th Cir. 2010). 18 Whether a written contract is ambiguous is a question of law. Airborne Freight Corp. v. 19 McPherson, 427 F.2d 1283, 1285 (9th Cir. 1970) (“McPherson”). 20 California law permits the admission of parol evidence “only if it is (1) ‘relevant’ to prove 21 (2) ‘a meaning to which the language of the instrument is reasonably susceptible,’” i.e., when the 22 contract language is ambiguous. U.S. Cellular, 281 F.3d at 938 (quoting Pacific Gas & Elec. Co. 23 v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 37 (1968)); see In re Bennett, 298 F.3d 24 1059, 1064 (9th Cir. 2002). When contract language is ambiguous, courts may consider extrinsic 25 evidence under a two-part test. F.B.T. Prods, 621 F.3d at 963. First, the court provisionally 26 receives, without admitting, all credible evidence concerning the parties’ intentions to determine 27 whether the language is “reasonably susceptible” to the interpretation urged by a party. Id. (citing 1 “reasonably susceptible” to the party’s interpretation, it may admit the extrinsic evidence to help 2 interpret the contract. Id.; see Cachil Dehe Band of Wintun Indians of Colusa Indian Cmty. v. 3 California, 618 F.3d 1066, 1076 (9th Cir. 2010). An ambiguity exists where a party can identify 4 an “alternative, semantically reasonable, candidate of meaning of a writing.” Solis v. Kirkwood 5 Resort Co., 94 Cal. App. 4th 354, 360 (2001). However, “[c]ourts will not add a term about which 6 a contract is silent.” Dameron Hosp. Assn. v. AAA N. California, Nevada & Utah Ins. Exch., 229 7 Cal. App. 4th 549, 569 (2014) (citation omitted). 8 The relevant provisions of the SDA state:
9 2.1 The Supplier [Cortiças] hereby appoints the Distributor [Corks USA] as its exclusive (with the exceptions set forth in this Agreement) distributor and marketer 10 for the resale of corks in the United States, and the Distributor agrees to act in that capacity subject to the terms and conditions of this Agreement. 11
12 2.2 The Distributor will be entitled to describe itself as the Supplier’s “Exclusive Authorized Distributor” for corks in the United States . . . 13 5.1 The parties acknowledge that Supplier has existing business with three accounts 14 in the United States, and that Supplier has the right to continue to service . . . these accounts directly and without the participation or input of Distributor. These 15 accounts are limited to: Robert Mondavi, E.J. Gallo and Ferrari Carano. 16 5.2 Should Supplier learn of any new potential customer for corks in the United 17 States, Supplier will promptly inform Distributor. If Distributor agrees that that person will become a direct customer of Supplier, Supplier will pay to Distributor a 18 referral fee on an ongoing basis in the amount of five percent of the invoice amount 19 from that customer, when and as received by Supplier.
20 9. To the extent necessary to accomplish its obligations under this Agreement, Supplier hereby grants to Distributor a royalty free license to use within the United 21 States and during the term of this Agreement the name “M.A. Silva” in connection with corks, including any logo and any trademark rights therein. 22
23 Goodrich Decl., Ex. 3 (“SDA”). 24 Corks USA asserts that the contract language clearly and unambiguously prohibits Cortiças 25 from selling corks to any United States customers, except for the three specified pre-existing 26 business accounts, without Corks USA’s knowledge, consent, and referral payment. MSJ at 21- 27 22. Cortiças contends that the exclusivity provision is ambiguous, as it may be interpreted to 1 only if those customers would resell under the M.A. Silva brand. Opp. at 17-18; M.S. Decl. (ECF 2 88-2) ¶ 10. In support of this interpretation, Defendants submit extrinsic evidence of the 3 contract’s meaning – a declaration from M. Silva. 4 Here, the language of the contract is clear. The SDA states that Cortiças agreed to sell “to 5 no other person in the United States” except for Corks USA, excepting the three listed accounts. 6 SDA §§ C, 5.1. It further states that Cortiças will notify Corks USA if it learns of “any new 7 potential customer for corks in the United States” and that Cortiças will pay Corks USA a referral 8 fee if Corks USA “agrees that that person will become a direct customer” of Cortiças. Id. § 5.2. 9 The contract plainly prohibited Cortiças from selling corks to any other cork distributor in the U.S. 10 besides Corks USA and the three pre-existing accounts. Nothing in the language of the contract 11 supports Defendants’ interpretation that the SDA only prohibited Cortiças from selling M.A. 12 Silva-branded corks to other U.S. resellers. The Court finds the language of the contract 13 unambiguous. Thus, the Court does not consider extrinsic evidence of the contract’s meaning. 14 Even if the Court were to consider M. Silva’s declaration, the Court does not read it to 15 support Defendants’ proposed interpretation of the contract. In the declaration, M. Silva states 16 that he 17 intended for the reference in Section 5.2 of the Agreement to ‘any new potential 18 customer for corks in the United States’ and ‘direct customer’ to mean any buyer 19 that desired to purchase and sell M.A. Silva corks under the M.A. Silva name in the United States. I did not intend for the SDA to mean that Cortiças was 20 foreclosed from selling corks to other customers in the United States if those customers would not resell those corks under the M.A. Silva brand. 21 22 M.S. Decl. ¶ 10. However, M. Silva’s purported intention in entering the contract, as he describes 23 it twenty-two years after the parties entered the SDA does not make the language “reasonably 24 susceptible” to his interpretation. F.B.T. Prods, 621 F.3d at 963. Indeed, “[i]t is the outward 25 expression of the agreement, rather than a party’s unexpressed intention, which the court will 26 enforce.” Winet, 4 Cal. App. 4th at 1166 (finding that tendered parol evidence of plaintiff’s 27 “uncommunicated subjective intent as to the meaning of the words of the contract” was 1 Defendants offer no evidence showing that M. Silva’s intention in entering the SDA was 2 mutually shared, or that M. Silva had or expressed this intent at the time of contracting. See id. 3 Moreover, Defendants’ interpretation of the contract would require reading the words “M.A. Silva 4 branded corks” into the contract. The Court does cannot now “create for the parties a contract that 5 they did not make and cannot insert language that one party now wishes were there.” Vons 6 Companies, Inc., 78 Cal. App. 4th at 59. Defendants also argue that section 9 of the SDA, which 7 grants Corks USA a license to use the name “M.A. Silva,” “corroborates that the Parties 8 strategically entered into the SDA to allow the company to market and distribute M.A. Silva- 9 branded corks.” Opp. at 18. However, M. Silva admits in his declaration that Cortiças provides 10 “unbranded, plain corks” to Corks USA, and that Corks USA distributes corks without M.A. Silva 11 branding at the customer’s discretion. M.S. Decl. ¶ 12. Thus, by M. Silva’s own admission, the 12 SDA did not contemplate only the selling and distribution of M.A. Silva-branded corks. 13 Under the unambiguous reading of the contract, Cortiças appointed Corks USA as the 14 exclusive distributor and marketer for reselling corks in the United States, with the exception of 15 the three pre-existing accounts. SDA §§ 2.1, 5.1. Cortiças was required to inform Corks USA of 16 any new potential customers for corks in the United States, and to pay Corks USA a referral fee of 17 five percent of the invoice amount if Corks USA agreed that the person would become a direct 18 customer of Cortiças. Id. § 5.2. The undisputed evidence shows that Cortiças breached these 19 provisions when it sold cork to Scott Labs without Corks USA’s knowledge or consent and 20 without paying Corks USA a referral fee. 21 Accordingly, the Court finds that there is no triable issue of material fact and GRANTS 22 summary judgment to Corks USA on its claim that Cortiças breached the contract. As the parties 23 agree that there is a dispute of fact as to the amount of damages, see Opp. at 22-23, ECF 91 at 12, 24 the Court finds it proper to grant Corks USA partial summary judgment only on the issue of 25 liability for breach of contract. 26 2. Untimely and Poor-Quality Deliveries 27 Corks USA also contends that Cortiças breached the SDA by failing to deliver timely 1 delivery date.” SDA §§ 3.2, 3.6. Corks USA indicates that “starting in or around late 2015, cork 2 shipments from Cortiças became significantly and regularly delayed.” Foster Decl. ¶ 10. 3 Although Defendants do not contest that there were shipping delays, Opp. at 22, they provide 4 expert reports showing that any delays were attributable to factors outside of Cortiças’ control, 5 such as supply chain problems caused by COVID-19 and resulting labor shortages. Id. (citing 6 Villagomez Decl. (ECF 88-1), Ex. 1 ¶¶ 23-24). Corks USA provides no evidence or argument 7 contradicting Defendants’ evidence. As Corks USA has not conclusively established that 8 Defendants failed to use “reasonable endeavours to meet the delivery date,” Corks USA has not 9 shown that it is entitled to judgment as a matter of law. 10 Corks USA also contends that Cortiças breached the SDA by providing poor-quality cork 11 to Corks USA. MSJ at 19, 22. The SDA requires that “all cork delivered by Supplier must 12 conform to the [parties’ established standard cork] grades, with a reasonable allowance for natural 13 variation in the product.” SDA § 4.1. It also specifies certain tests that must be conducted on the 14 corks prior to shipment. Id. § 4.2. Corks USA provides evidence of customer complaints related 15 to the presence of TCA7 in the corks. See Goodrich Decl. Exs. 26-32. However, Plaintiffs fail to 16 put forth evidence showing that Cortiças failed to conduct tests prior to shipment or that any 17 variations were more than “reasonabl[y] allow[ed].” SDA § 4. Plaintiffs have thus not 18 conclusively established breach under the terms of the contract, and the Court cannot grant 19 summary judgment. 20 The Court accordingly DENIES summary judgment as to the breach of contract claim for 21 Cortiças’ delayed and poor-quality cork shipments. 22 C. Alter Ego Liability 23 Plaintiffs contend that Holdings, Iberian Cork, Cork Partners, J. Silva, and M. Silva are 24 liable for Cortiças’ actions, including its breach of contract, because they are alter egos of 25 Cortiças. MSJ at 23-26. 26
27 7 TCA is a bacteria contaminant found in corks that causes “cork taint” and spoils the wine. Foster 1 A “general principle of corporate law” is that “a parent corporation . . . is not liable for the 2 acts of its subsidiaries.” United States v. Bestfoods, 524 U.S. 51, 61 (1998). But “the corporate 3 veil may be pierced and [a] shareholder held liable for the corporation’s conduct” in certain 4 situations. Id. California courts have imposed alter ego liability, recognizing that “it would be 5 unjust to permit those who control companies to treat them as a single or unitary enterprise and 6 then assert their corporate separateness in order to commit frauds and other misdeeds with 7 impunity.” Las Palmas Assocs. v. Las Palmas Ctr. Assocs., 235 Cal. App. 3d 1220, 1249 (1991). 8 Courts may impose alter ego liability for parent-subsidiary or sister companies under the “single- 9 enterprise rule.” Greenspan v. LADT, LLC, 191 Cal. App. 4th 486, 512 (2010) (quoting Las 10 Palmas, 235 Cal. App. 3d at 1249-50). Under the single enterprise rule, one company may be 11 liable for the debts of another when the latter is “so organized and controlled, and its affairs are so 12 conducted, as to make it merely an instrumentality, agency, conduit, or adjunct of another 13 corporation.” Toho-Towa Co. v. Morgan Creek Prods., Inc., 217 Cal. App. 4th 1096, 1107 (2013) 14 (citation omitted). 15 The same principles apply for piercing the corporate veil to attach liability to a shareholder 16 or to hold a different corporation liable as part of a single enterprise. Toho-Towa Co., 217 Cal. 17 App. 4th at 1108. To pierce the corporate veil, Plaintiffs must prove: (1) “such a unity of interest 18 and ownership between the corporation and its equitable owner that the separate personalities of 19 the corporation and the shareholder do not in reality exist” and (2) “an inequitable result if the acts 20 in question are treated as those of the corporation alone.” Sonora Diamond Corp. v. Superior Ct., 21 83 Cal. App. 4th 523, 538 (2000). 22 In considering whether there is sufficient unity of interest and ownership, courts consider 23 factors such as:
24 inadequate capitalization, commingling of funds and other assets, holding out by 25 one entity that it is liable for the debts of the other, identical equitable ownership, use of the same offices and employees, use of one as a mere conduit for the affairs 26 of the other, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. 27 1 No single characteristic governs, Sonora Diamond Corp., 83 Cal. App. 4th at 539, and this 2 determination is primarily a question of fact, Toho-Towa Co., 217 Cal. App. 4th at 1108. 3 Plaintiffs argue that M. Silva, J. Silva, Iberian Cork, Cork Partners, and Holdings are liable 4 for Cortiças’ breach of contract because they are alter egos. MSJ at 23. Plaintiffs provide 5 undisputed evidence that M. Silva and J. Silva own and control the various Defendant companies.8 6 Plaintiffs also proffer undisputed evidence that the various companies share leadership, officers, 7 and some employees,9 and that some of the entities share document storage or offices.10 The 8 record further shows that in addressing a wire transfer issue, Cortiças once directed Scott Labs to 9 pay Cortiças for an amount owed to Iberian Cork (which it promised to then transfer the funds to 10 Iberian Cork). Second Goodrich Decl., Ex. 2 (ECF 92-2) at 3. In another instance, J. Silva 11 directed Scott Labs to wire money to Cortiças (as the cork supplier) instead of Iberian Cork. Id., 12 Ex. 3 (ECF 92-3) at 2. J. Silva also admits that at least one reason why he formed Iberian Cork 13 was to sell corks in the United States without involving or having to pay anything to Corks USA. 14 Goodrich Decl., Ex. 7 at 10:14-20. 15 However, not all the Silva companies share employees (e.g., Cork Partners and Cortiças do 16
17 8 See M.S. Ans. ¶¶ 13-14 (M. Silva is founder and president, and J. Silva is CEO, of Cortiças); J.S. Decl. ¶ 4 (J. Silva manages Cortiças jointly with the Board of Directors, which is made up of M. 18 Silva, Elvira Silva, and J. Silva); J.S. Decl. ¶ 6 (Cortiças owns 100% of Holdings); id. (Holdings is solely managed by M. Silva and has no board of directors and no employees); J.S. Ans. ¶ 16 (M. 19 Silva owns 60% of Iberian Cork and J. Silva owns 40%); J.S. Decl. ¶ 8 (J.S. is a director of Iberian Cork and Iberian Cork has one employee); Goodrich Decl., Ex. 8 at 6:11-18; J.S. Decl. ¶ 7 (Cork 20 Partners is a holding company created for the sole purpose of holding Iberian Cork’s shares); J.S. Decl. ¶ 7 (M. Silva owns 60% of Cork Partners and J. Silva owns 40%, Cork Partners has no 21 employees, and J.S. is the Director and a shareholder); Goodrich Decl., Ex. 7 at 7:16-8:8 (J. Silva and M. Silva established Iberian Cork and Cork Partners together in 2017 and made the decision 22 to have Iberian Cork sell corks to Scott Laboratories).
23 9 J. Silva states that “the entities do not share leadership or ownership,” J.S. Decl. ¶ 10, but that is belied by the evidence. See, e.g., J.S. Decl. ¶¶ 4, 6-8, 10 (J. Silva is CEO of Cortiças, which he 24 jointly manages with a board including M. Silva, who manages Holdings); Goodrich Decl., Ex. 5 at 10:2-11:17, Ex. 9 at 11:2-15; J.S. Dec. ¶¶ 7-8 (Iberian Cork and Cork Partners share leadership 25 with Cortiças and some of the same officers and employees).
26 10 See, e.g., Goodrich Decl., Ex. 5 at 10:10-16, Ex. 9 at 10:21-27 (Iberian Cork and Cortiças share document storage, and Cork Partners and Cortiças share document storage); M.S. Ans. ¶¶ 15-16; 27 J.S. Ans. ¶¶ 15-16 (Cook Partners and Iberian Cork operate out of the same address in Malta); 1 not share employees). Goodrich Decl., Ex 9 at 11:24-12:5. Although the record shows that some 2 of the companies share “some of the same officers and employees,” there is no evidence of how 3 many officers or employees overlap, the identity of the employees shared between the companies, 4 or whether they have leadership roles. Further, Plaintiffs have not presented evidence of 5 commingling of funds, inadequate capitalization, or disregard of corporate formalities. 6 The Court recognizes that alter ego is an “extreme remedy” that is to be used “sparingly.” 7 Sonora Diamond Corp., 83 Cal. App. 4th at 539; see Gopal v. Kaiser Found. Health Plan, Inc., 8 248 Cal. App. 4th 425, 431 (2016), as modified (June 23, 2016) (imposition of alter ego liability is 9 to be “approached with caution” and courts should disregard the corporate form “only in narrowly 10 defined situations”) (citation omitted). Although J. Silva and M. Silva owned and held leadership 11 positions in the various companies, and several of the companies wholly owned the others, “[t]otal 12 ownership and shared management personnel are alone insufficient to establish the requisite level 13 of control.” Ranza v. Nike, Inc., 793 F.3d 1059, 1073 (9th Cir. 2015). Indeed, to hold a parent 14 corporation liable for the acts of a subsidiary, there must be “pervasive control,” such as when a 15 parent corporation “dictates every facet of the subsidiary’s business – from broad policy decisions 16 to routine matters of day-to-day operation.” Id. (citation omitted). Plaintiffs have not presented 17 such evidence here. 18 Ultimately, while Plaintiffs have presented evidence showing an overlap of interest and 19 ownership among the various companies, these allegations are insufficient to establish alter ego 20 liability as a matter of law. See Sonora Diamond Corp., 83 Cal. App. 4th at 538; see, e.g., 21 whiteCryption Corp. v. Arxan Techs., Inc., No. 15-CV-00754-WHO, 2016 WL 3275944, at *9 22 (N.D. Cal. June 15, 2016) (finding no alter ego liability despite a company’s “significant 23 involvement in [the other’s] operations, and despite “shar[ing] the same headquarters, officers, 24 directors, and other employees,” as there were no allegations of commingled funds, 25 undercapitalization, or disregard of corporate formalities). Given the amorphous nature of the 26 test, and the fact-heavy nature of the inquiry, on the record before it, the Court finds that Plaintiffs 27 have not established alter ego liability as a matter of law, and that this determination is best left to 1 D. Remaining Claims 2 Because Plaintiffs have not established alter ego liability as matter of law, the Court finds 3 that there is a genuine dispute of material fact as to which Defendants may be liable for the 4 remaining claims, including tortious interference, breach of fiduciary duty, and fraudulent 5 || concealment. Given that the liability inquiry for these claims is fact-heavy (e.g., proving 6 || Defendants’ intentions for the tortious interference and fraudulent concealment claims and proving 7 materiality in the latter) and depends on a finding of alter ego liability (e.g., whether Holdings may 8 || be liable for Cortigas’ actions in the breach of fiduciary duty claim), the Court DENIES summary 9 judgment on the claims of fraud (count five), tortious interference (count seven), tortious breach 10 (count eight), and breach of fiduciary duties (count nine). 11 IV. CONCLUSION 12 For the foregoing reasons, the Court GRANTS Corks USA’s motion for summary 13 || judgment for Corticas’ liability for breach of contract as to the SDA’s exclusivity provision and 14 || DENIES summary judgment for breach of contract as to Cortigas’ untimely and poor-quality 3 15 || deliveries. The Court DENIES Plaintiffs’ motion for summary judgment as to J. Silva, M. Silva, a 16 || Holdings, Iberian Cork, and Cork Partners’ liability for breach of contract under an alter ego
17 || theory. The Court also DENIES Plaintiffs’ motion for summary judgment on the tortious 18 interference and breach, breach of fiduciary duty, and fraudulent concealment claims. 19 20 IT IS SO ORDERED. 21 Dated: March 18, 2024 22 □ □ * (Nnacel ARACELI MARTINEZ-OLGUIN 24 United States District Judge 25 26 27 28