Mighty Enterprises, Inc. v. She Hong Industrial Co. Ltd.

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 15, 2018
• Docket: 16-56909
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS AUG 15 2018 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

MIGHTY ENTERPRISES, INC., doing No. 16-56909 business as Mighty USA, D.C. No. 2:14-cv-06516-JCG Plaintiff-Appellee,

v. MEMORANDUM*

SHE HONG INDUSTRIAL CO. LTD.,

Defendant-Appellant,

and

DOES, 1-10,

Defendant.

Appeal from the United States District Court for the Central District of California Jay Gandhi, Magistrate Judge, Presiding

Argued and Submitted July 11, 2018 Pasadena, California

Before: FISHER,** WATFORD, and FRIEDLAND, Circuit Judges.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable D. Michael Fisher, United States Circuit Judge for the U.S. Court of Appeals for the Third Circuit, sitting by designation. She Hong Industrial appeals from the District Court’s entry of final

judgment after a jury trial and the District Court’s denial of its post-trial motions.

On appeal, She Hong challenges the District Court’s refusal to give a jury

instruction, the admission of an expert’s testimony, and the award of punitive

damages. We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm the

District Court’s determinations on the jury instructions and expert testimony,

thereby affirming the award of compensatory damages. We reverse the award of

punitive damages.

She Hong is a machining equipment and parts manufacturer in Taiwan. For

many years, Mighty Enterprises served as She Hong’s exclusive distributor in the

United States. The two companies never had a written distribution agreement.

After the distribution relationship ended, Mighty sued She Hong for, inter alia,

breach of oral contract, breach of implied contract, fraud, and tortious interference

with contractual business relations. A jury awarded approximately $6 million in

compensatory damages and $6 million in punitive damages.

1. If a district court’s instructions “fairly and adequately covered the issues

presented and provided [the party] with ample room to argue [its] theory of the

case to the jury,” there is no error. Brewer v. City of Napa, 210 F.3d 1093, 1097

(9th Cir. 2000) (quotation marks, citation, and alteration omitted) (quoting Chuman

v. Wright, 76 F.3d 292, 294 (9th Cir. 1996)). Here, She Hong challenges the

2 16-56909 District Court’s refusal to provide an instruction on California Commercial Code

§ 2309, which relates to reasonable notice of termination for contracts of indefinite

duration. However, the absence of this instruction did not limit the defense’s

ability to present its theory and therefore did not constitute error. She Hong had not

established any foundation before the District Court for the application of § 2309

because its theory of the case was that it never terminated the agreement, not that it

had provided reasonable notice of termination in accordance with § 2309.

She Hong sought the instruction to clarify that damages should be limited to

a reasonable notice period after which it otherwise could have terminated the

arrangement. But the instructions provided by the District Court sufficiently

established that compensatory damages were only meant to make Mighty whole,

so the requested instruction would not have provided any added clarity on this

point. We conclude that the given instructions “fairly and adequately cover[ed] the

issues presented, . . . correctly state[d] the law, and [were] not . . . misleading.”

Clem v. Lomeli, 566 F.3d 1180, 1181 (9th Cir. 2009) (quoting Dang v. Cross, 422

F.3d 800, 804 (9th Cir. 2005)).

2. The admission of expert testimony is reviewed for abuse of discretion.

Gen. Elec. Co. v. Joiner, 522 U.S. 136, 139 (1997). She Hong’s challenge to

Mighty’s expert, namely that he parroted certain costs from amounts provided to

him by Mighty, does not render the testimony inadmissible. It is relevant to the

3 16-56909 persuasiveness of his testimony, not its admissibility. See Alaska Rent–A–Car, Inc.

v. Avis Budget Grp., Inc., 738 F.3d 960, 970 (9th Cir. 2013); Hangarter v.

Provident Life & Accident Ins. Co., 373 F.3d 998, 1018 n.14 (9th Cir. 2004).

The expert never purported to have independently verified the accuracy of

the numbers provided to him by Mighty, and those numbers had already been

admitted into evidence through a Mighty employee. Experts can rely on data

provided to them without independent verification because the “factual basis of an

expert opinion goes to the credibility of the testimony, not the admissibility, and it

is up to the opposing party to examine the factual basis for the opinion in cross-

examination.” Hangarter, 373 F.3d at 1018 n.14 (quoting Children’s Broad. Corp.

v. Walt Disney Co., 357 F.3d 860, 865 (8th Cir. 2004)). Similarly, the District

Court did not err in admitting the expert’s testimony that he had been informed by

Mighty that the resale value of its She Hong inventory was zero. If the machines

did have resale value, She Hong had the opportunity on cross to discredit him.

She Hong’s second argument, that the expert’s use of a ten-year period for

lost future profits rendered his testimony inadmissible, also fails. An expert can use

assumptions, inferences, and comparisons. Such assumptions are admissible; their

reliability is impeachable. Alaska Rent–A–Car, 738 F.3d at 969.

3. The availability of punitive damages is reviewed de novo. Hangarter,

373 F.3d at 1013. “[A]n award of punitive damages cannot be sustained on appeal

4 16-56909 unless the trial record contains meaningful evidence of the defendant’s financial

condition,” and the party seeking punitive damages bears that burden. Adams v.

Murakami, 813 P.2d 1348, 1349 (Cal. 1991). Mighty did not satisfy that burden.

Mighty offered no proof of She Hong’s assets or liabilities and no

meaningful evidence of its financial condition. It argued to the jury that because

She Hong claims on its website to be Taiwan’s largest manufacturer of machine

tools, because its facilities in Taiwan exceed 80,000 square meters, and because the

machines it sells cost a half million to a million dollars each, She Hong had the

ability to pay. However, proof of size is not equivalent to proof of financial

condition. “The California Supreme Court has declined to prescribe any particular

standard for assessing a defendant’s ability to pay punitive damages, but it has held

that actual evidence of the defendant’s financial condition is essential.” Kelly v.

Haag, 52 Cal. Rptr. 3d 126, 128 (Cal. Ct. App. 2006) (citation omitted). Mighty’s

contention that, to prove financial condition, it was sufficient to indicate She

Hong’s size and activities outside of the United States is not supported by the case

law.

Although California courts do not have a rigid requirement for the method of

proof, “[n]ormally, evidence of liabilities should accompany evidence of assets.”

Baxter v. Peterson, 58 Cal. Rptr. 3d 686, 691 (Cal. Ct. App. 2007) (reversing

punitive damages award where record included no evidence of liabilities); see

5 16-56909 Adams, 813 P.2d at 1353 (“Sound public policy should preclude awards based on

mere speculation.”). Mighty did not come close to the level of proof of financial

condition that California courts have recognized as sufficient. See Zaxis Wireless

Commc’ns, Inc. v. Motor Sound Corp., 107 Cal. Rptr. 2d 308, 312–13 (Cal. Ct.

App. 2001); Pfeifer v. John Crane, Inc., 164 Cal. Rptr. 3d 112, 142 (Cal. Ct. App.

2013), as modified on denial of reh'g (Nov. 27, 2013).

Mighty’s limited evidence of the size of She Hong’s facilities and the price

of its machines was insufficient because Mighty offered no evidence of She

Hong’s liabilities or even evidence that She Hong owned those facilities. In

addition, Mighty told the District Court that it had no financials from She Hong

and claimed, without support, that there was no way for it to get such information.

Mighty was free to seek discovery to obtain this evidence, but declined to do so.

By failing to present evidence of She Hong’s actual assets and liabilities, Mighty

failed to meet its burden. We reverse the punitive damages award.

AFFIRMED in part, REVERSED in part.

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