Mag Aerospace Industries, LLC v. Precise Aerospace Mfg.

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 26, 2021
• Docket: 19-55932
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS APR 26 2021

FOR THE NINTH CIRCUIT MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

MAG AEROSPACE INDUSTRIES, LLC, No. 19-55932 DBA Zodiac Water & Waste Aero Systems, D.C. No. 5:18-cv-01096-RGK-JC Plaintiff-Appellee, v. MEMORANDUM*

PRECISE AEROSPACE MANUFACTURING, INC., Defendant-Appellant.

Appeal from the United States District Court for the Central District of California R. Gary Klausner, District Judge, Presiding Argued and Submitted March 1, 2021 Pasadena, California

Before: SILER,** HURWITZ, and COLLINS, Circuit Judges.

Precise Aerospace Manufacturing, Inc. (“Precise”) appeals the judgment

entered against it after a bench trial in this diversity action filed by MAG

Aerospace Industries, LLC (“MAG”), which asserted claims for conversion,

negligent interference with prospective economic relations, and breach of contract.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Eugene E. Siler, United States Circuit Judge for the U.S. Court of Appeals for the Sixth Circuit, sitting by designation. We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part, reverse in

part, and remand.

MAG manufactures water-and-waste systems for commercial airplanes built

by original equipment manufacturers, such as Boeing and Airbus. Precise

specializes in precision manufacturing of plastics for the aerospace and defense

industries. In late 2012, MAG contracted with Precise to manufacture injection-

molded plastic component parts for MAG’s systems. MAG supplied unique

“molds” so that Precise could manufacture these parts to MAG’s specifications.

Precise also agreed to produce additional molds for MAG. MAG used the parts

Precise provided to assemble water-and-waste systems for its customers.

The current litigation arises from Precise’s possession of 102 MAG molds.

After disputes arose between MAG and Precise, MAG placed orders with another

supplier to duplicate dozens of the molds and filed this action. After a bench trial,

the district court entered judgment in favor of MAG on its conversion and breach-

of-contract claims in the amount of $1,317,315.78. It rejected MAG’s claim for

interference with prospective economic relations. Precise timely appealed.

1. The district court erred in awarding $29,879.88 for the conversion of

mold number 77000-505-607 (“Mold 607”) in “Mold Duplication Group 2.”1

1 For purposes of this litigation, the parties and the district court categorized the duplicated molds into four groups, and we follow the same taxonomy. Mold Duplication Group 1 is not at issue in this appeal.

2 Liability for conversion requires wrongful possession of the plaintiff’s property,

see Lee v. Hanley, 354 P.3d 334, 344 (Cal. 2015), and there is no such proof as to

Mold 607.

Neither party disputes that Precise was initially in lawful possession of Mold

607 in order to fulfill MAG’s parts orders. After Precise refused to honor some of

MAG’s purchase orders, MAG sent an email to Precise on November 9, 2017

demanding the return of certain molds listed by identification number. After

Precise did not immediately return those molds, MAG ordered duplicates of

several molds, including Mold 607, from a third party. The district court clearly

erred in finding that Mold 607 was among those listed in the November 9, 2017

email. MAG admits as much, but it claims that an affidavit filed in a separate suit

confirms that it demanded the return of Mold 607 on November 27, 2017. But

because that affidavit was not introduced as evidence in this case, we decline to

consider it.2 United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007)

(“Appellate courts ‘generally will not consider facts outside the record developed

before the district court . . . .’”). Because the trial record does not show that MAG

demanded return of Mold 607 prior to ordering its duplicate on December 22,

2017, we reverse the award of $29,879.88 for conversion of Mold 607.

2. With regard to Mold Duplication Group 3, the district court’s findings do

2 Accordingly, both sides’ motions for judicial notice (Dkt. Nos. 32, 40) are denied.

3 not support its conclusion that all of MAG’s efforts to mitigate its damages flowing

from Precise’s breach of its contracts with MAG were reasonable.

a. In January 2018, in the midst of their various disputes, MAG and Precise

met and orally agreed that MAG would place a final round of new purchase orders

with Precise. MAG placed the orders, and Precise began fulfilling them using

MAG’s molds. However, in May 2018, Precise insisted it now owned the molds,

and Precise initiated a shipment hold because MAG was late on payments. MAG

immediately sent the late payments. Precise, however, did not lift the shipment

hold and failed to deliver several parts by their delivery dates. On May 23, 2018,

MAG ordered several additional duplicate molds from another supplier. On June

11, 2018, MAG applied for a preliminary injunction and a writ of possession. And

then, on July 4, 2018, MAG ordered another few dozen molds from a third party.

On July 18, 2018, the district court entered a preliminary injunction, ordering

Precise to lift the shipment hold and to perform its obligations with respect to

MAG’s existing purchase orders. The next day, Precise shipped the parts subject

to the shipment hold to MAG.

The district court concluded that “MAG’s untimely payments were not

serious enough to release Precise from its duty to perform under the purchase

orders.” Because Precise was “still required to perform on the terms of the

purchase orders,” the court reasoned, Precise anticipatorily breached the contract

4 when it initiated the shipment hold. On appeal, Precise only contests the district

court’s finding that MAG’s decision to duplicate certain molds constituted a

reasonable attempt to mitigate damages. Based on that finding, the district court

awarded MAG the total cost for producing these replacement molds, $903,735.

b. Under California law, “an injured party who makes a reasonable attempt

to mitigate his damages is allowed to recover the cost of such reasonable

mitigation effort as damages from the party who breached the contract.” Brandon

& Tibbs v. George Kevorkian Acct. Corp., 277 Cal. Rptr. 40, 52 (Cal. Ct. App.

1990). The question is not, as Precise argues, whether “the damages incurred by

[MAG] in mitigating [its] losses exceeded the damages to be saved by the

mitigation attempt.” Rather, the question is “whether the sums expended were

reasonable in amount and expended in good faith for purposes of mitigating the

losses inflicted.” Id. at 53–55. Under California law, whether MAG reasonably

mitigated its damages is a question of fact, Ortiz v. Bank of Am. Nat’l Tr. & Sav.

Ass’n, 852 F.2d 383, 387 (9th Cir. 1987), and in this appeal from a bench trial, we

therefore review for clear error, Oakland Bulk & Oversized Terminal, LLC v. City

of Oakland, 960 F.3d 603, 612 (9th Cir. 2020).

Precise argues that “MAG knew the duplicate molds . . . could not possibly

yield new parts in time to meet its customers’ deadlines.” MAG argues that the

district court did not clearly err in awarding the total cost of the molds. Both of

5 these arguments are couched in all-or-nothing terms: Precise argues it was

unreasonable to duplicate all of the molds, and MAG argues it was reasonable to

duplicate all of the molds. Neither position finds support in the record.

For example, at least some of the molds that MAG ordered do not appear to

be associated with any of the part numbers listed in the purchase orders that were

the subject of Precise’s shipment hold. If they were not, the ordering of such

molds could not have been a reasonable effort to mitigate damages resulting from

the shipment hold. On the other hand, Precise is wrong in contending that it was

clear error to find that any of the molds could have “yield[ed] new parts in time to

meet [MAG’s] customers’ deadlines.” For example, MAG presented evidence

showing that, with respect to duplicate mold 77000-505-604, which was ordered

on May 23, 2018, MAG needed parts associated with that mold by August 30,

2018 in order to meet its customer deadlines. The purchase order for this duplicate

mold lists a requested delivery date of July 25, 2018; that delivery timeline was

consistent with a MAG executive’s estimate concerning expedited production

timelines. MAG therefore could reasonably have thought that the mold could

produce the needed parts by the August 30 need date (or perhaps by a slightly later

date negotiated with its customers).

6 Given that the record does not support either side’s all-or-nothing position,

we remand to the district court to analyze the reasonableness of each specific

duplication order for Mold Duplication Group 3.

c. We reject Precise’s alternative argument that the district court erred in

finding that, by the time Precise shipped the late parts on July 19, 2018, MAG

could not have cancelled the orders without incurring the full cost.3 There was

evidence from which the district court could have reasonably inferred that the

orders were cancellable. But the district court’s contrary conclusion was not

clearly erroneous. MAG paid a 50-percent down payment on each of the duplicate

molds ordered, and a MAG executive testified that these were “firm purchase

orders” for which “MAG would be obligated” for the full cost. Viewing the trial

evidence as a whole, we cannot say that the district court’s finding was “illogical,

implausible, or without support in inferences from the record.” Oakland Bulk, 960

F.3d at 613.

d. Precise argues that, because it ultimately returned the original molds to

MAG, it is entitled “to an offset for the value of either the original molds or the

duplicate set MAG obtained.” We disagree. Under California law, the “general

rule of compensatory damages bars double recovery for the same wrong.” Krusi v.

3 The district court’s finding about cancellation refers to “July 19, 2019” instead of July 19, 2018. This was an obvious scrivener’s error, and we reject Precise’s efforts to take advantage of the error.

7 Bear, Stearns & Co., 192 Cal. Rptr. 793, 798 (Cal. Ct. App. 1983) (emphasis

added). With respect to Mold Duplication Group 3, the wrong was not a

conversion of the molds, but Precise’s refusal to ship parts in violation of its

contractual obligations. As a result, the $903,735 spent to duplicate these molds

were not damages for the value of “converted” property that was later returned.

Rather, they were consequential damages: as the district court found, MAG would

not have duplicated the molds “[h]ad Precise not indefinitely halted shipment.”

The subsequent return of the molds that MAG duplicated in this group thus did not

eliminate the already-incurred consequential damages for Precise’s breach of

contract. There was no double recovery.

3. As to Mold Duplication Group 4, the district court did not err in finding

that Precise converted 10 molds that MAG duplicated, but we remand for the

district court to consider whether, under California law, the cost of the duplicate

molds should be offset by the value of the returned original molds.

On January 11, 2019, MAG demanded the return of 10 specific molds for

which it had no open parts orders with Precise. After Precise refused to return

those molds, MAG ordered duplicates on January 14 and 15, 2019. At trial, the

district court found that Precise converted those molds and awarded the “total

duplication cost,” $383,700.90.

a. Precise contends that it did not wrongfully possess seven of these molds

8 because, after the district court on July 18, 2018 granted MAG’s application for a

writ of possession as to 52 specific molds without open purchase orders, Precise

posted a bond that allowed it to retain them. But the posting of an undertaking

under California Code of Civil Procedure § 515.020 merely prevented the district

court’s order from taking immediate effect, thus precluding the Sheriff of Los

Angeles County from levying on and seizing the 52 molds. The posting of that

undertaking did not affect the district court’s finding that Precise’s possession was

wrongful and that MAG was entitled to return of the molds. Indeed, the whole

point of an undertaking is precisely to ensure that funds will be available to cover

damages associated with deferring enforcement of the opposing party’s rights. See

CAL. CIV. PROC. CODE § 515.020(b) (undertaking must cover damages “sustain[ed]

by reason of the loss of possession of the property”). Precise’s argument that the

undertaking somehow absolved it of liability for conversion fails.

b. Alternatively, Precise argues that, with respect to Mold Duplication

Group 4, MAG failed to carry its burden to show “the unavoidability of the loss for

which [it] claims reimbursement.” See Wong v. Paine, Webber, Jackson & Curtis,

24 Cal. Rptr. 821, 824 (Cal. Ct. App. 1962) (noting that this is an element of a

conversion claim). According to Precise, “MAG could have avoided the costs of

duplicate molds by accepting Precise’s offer to make parts.” But a plaintiff is only

expected to take “reasonable” measures to mitigate damages. Green v. Smith, 67

9 Cal. Rptr. 796, 799–800 (Cal. Ct. App. 1968). Because Precise already had

breached multiple contracts with MAG and wrongfully refused to return MAG’s

molds, the district court properly concluded that it was reasonable for MAG, at that

point, not to enter into yet another contract with Precise. Precise again argues that

“MAG could have also avoided the costs to duplicate the molds by cancelling the

orders for the duplicates once Precise returned the originals,” but we find no clear

error in the district court’s rejection of this contention.

c. Again, Precise argues that, because it ultimately returned the original

molds to MAG, it is entitled “to an offset for the value of either the original molds

or the duplicate set MAG obtained.” We rejected this argument for Mold

Duplication Group 3, because the damages for that group were awarded as

consequential damages flowing from a breach of contract. See supra § 2.d. But

the measure of damages for a conversion claim is not necessarily the same as for a

breach-of-contract claim. The parties appear to disagree about whether the

conversion damages awarded on Mold Duplication Group 4 were for loss of use of

the original molds or simply for the cost of obtaining replacement molds. They

also disagree as to whether there is any applicable offset rule under California law.

We are unable to discern the basis for the Mold Duplication Group 4 conversion

award and the district court’s reasons for rejecting Precise’s request for an offset

10 from the order and judgment. Finding the record inadequate for our review, we

remand for the district court to re-examine this issue and to make specific findings.

4. Precise also contends that it is entitled to a damages offset for the costs

that it incurred in cleaning the molds before returning them to MAG. The district

court found, as a factual matter, that “Precise normally cleans molds itself, as part

of its ‘daily procedure,’ and that other customers are not usually charged for mold

cleaning,” and that MAG does not “pay[] for cleaning in its ordinary course of

business.” These findings are not clearly erroneous.

AFFIRMED in PART, REVERSED in PART, and REMANDED.