Natural-Immunogenics Corp. v. Newport Trial Group

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 7, 2024
• Docket: 22-55990
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS FEB 7 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

NATURAL-IMMUNOGENICS CORP., a No. 22-55990 Florida corporation, D.C. No. Plaintiff-Appellee, 8:15-cv-02034-JVS-JCG

v. MEMORANDUM* DAVID J. DARNELL; JAMES M. SABOVICH,

Appellants,

and

NEWPORT TRIAL GROUP, a California Corporation; SCOTT J. FERRELL, a California resident; RYAN M. FERRELL, an Arizona resident; VICTORIA C. KNOWLES, a California resident; ANDREW LEE BASLOW, a California resident; ANDREW NILON, a California resident; SAM PFLEG, a California resident; MATTHEW DRONKERS, a California resident; TAYLOR DEMULDER, a Nevada resident; SAM SCHOONOVER, a California resident; GIOVANNI SANDOVAL, an Arizona resident,

Defendants.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. NATURAL-IMMUNOGENICS CORP., a No. 22-55992 Florida corporation, D.C. No. Plaintiff-Appellee, 8:15-cv-02034-JVS-JCG

v.

NEWPORT TRIAL GROUP, a California Corporation; SCOTT J. FERRELL, a California resident,

Defendants-Appellants,

RYAN M. FERRELL, an Arizona resident; VICTORIA C. KNOWLES, a California resident; ANDREW LEE BASLOW, a California resident; ANDREW NILON, a California resident; SAM PFLEG, a California resident; MATTHEW DRONKERS, a California resident; TAYLOR DEMULDER, a Nevada resident; SAM SCHOONOVER, a California resident; GIOVANNI SANDOVAL, an Arizona resident,

NATURAL-IMMUNOGENICS CORP., a No. 22-56041 Florida corporation, D.C. No. Plaintiff-Appellant, 8:15-cv-02034-JVS-JCG

NEWPORT TRIAL GROUP, a California Corporation; SCOTT J. FERRELL, a

2 California resident; RYAN M. FERRELL, an Arizona resident; VICTORIA C. KNOWLES, a California resident; ANDREW LEE BASLOW, a California resident; DAVID REID; ANDREW NILON, a California resident; SAM PFLEG, a California resident; MATTHEW DRONKERS, a California resident; TAYLOR DEMULDER, a Nevada resident; SAM SCHOONOVER, a California resident; GIOVANNI SANDOVAL, an Arizona resident,

Defendants-Appellees,

BENJAMIN QUINTO; THEO QUINTO; PETER A. ARHANGELSKY; CHARLOTTE CARLBERG; MARYANN BUC; JIM BUC,

Counter-defendants- Appellees.

Appeal from the United States District Court for the Central District of California James V. Selna, District Judge, Presiding

Argued and Submitted December 6, 2023 Pasadena, California

Before: WARDLAW and BUMATAY, Circuit Judges, and KENNELLY, ** District Judge. Partial Concurrence and Partial Dissent by Judge BUMATAY.

** The Honorable Matthew F. Kennelly, United States District Judge for the Northern District of Illinois, sitting by designation.

3 Attorneys David J. Darnell and James M. Sabovich appeal the district

court’s sanctions order pertaining to their filing of counterclaims. Their client,

Newport Trial Group (“NTG”), defendant and counter-plaintiff below, joins in the

sanctions appeal. In a consolidated matter, NTG appeals the district court’s order

enforcing the settlement agreement. Finally, plaintiff and counter-defendant

below, Natural Immunogenics Corp. (“NIC”), cross-appeals from the district

court’s denial of sanctions pertaining to the settlement agreement. We have

jurisdiction pursuant to 8 U.S.C. § 1291, and we affirm.

1. The district court did not err by interpreting the parties’ binding Term

Sheet as an agreement that the “settlement terms” would be confidential and

subject to liquidated damages. The precise scope of the confidential terms and

liquidated damages were to be subject to “further discussion.” The text of the

parties’ agreement is “clear and explicit,” and so “it governs.” See Powerine Oil

Co., Inc. v. Superior Ct., 37 Cal. 4th 377, 390 (2005) (quoting Bank of the W. v.

Superior Ct., 2 Cal. 4th 1254, 1264 (1992)).

Reading the contract to form a substantive agreement as to confidentiality

does not render negotiations about the “precise scope” surplusage. Rather, this

reading is consistent with California courts’ recognition that parties may bind

themselves to agreements while leaving minor matters to further discussion. See

Weddington Prods., Inc. v. Flick, 60 Cal. App. 4th 793, 813 (1998).

4 Nor do NTG’s appeals to the parties’ course of dealings overcome the plain

text of the agreement. See First Nat’l. Morg. Co v. Fed. Realty Inv. Tr., 631 F.3d

1058, 1067 (9th Cir. 2011) (California contract law permits extrinsic evidence only

when the offered evidence is “relevant to prove a meaning to which the language

of the instrument is reasonably susceptible.” (quoting Pac. Gas & Elec. Co. v.

G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 37 (1968)).

2. The district court did not err by concluding that the Term Sheet was

enforceable despite the parties’ failure to execute a long-form agreement

specifying the precise scope of confidentiality or the value of liquidated damages

for breach of confidentiality. The Term Sheet contains no conditional language to

suggest that the existence of an agreement would depend upon the parties’ ability

to execute a long-form agreement. Moreover, a contract can remain enforceable if

non-essential terms are left for future agreement. Price Dev. Co. v. Redevelopment

Agent of City of Chino, 852 F.2d 1123, 1126 (9th Cir. 1988). Whether a term is

essential “is a question of degree and may be settled by determining whether the

indefinite promise is so essential to the bargain that inability to enforce that

promise strictly according to its terms would make unfair the enforcement of the

remainder of the agreement.” City of Los Angeles v. Superior Ct. of Los Angeles

Cnty., 51 Cal. 2d 423, 433 (1959). NTG has not established that the “precise

scope” of confidentiality or the amount of liquidated damages are material such

5 that their absence would render enforcement unfair. While the broad scope of

confidentiality—i.e. confidentiality for settlement terms—was discussed by the

parties and included in the Term Sheet, NTG has not shown that the limited

exceptions or other matters that might fall within the meaning of “precise scope”

were material to the parties’ agreement. Further, as the district court concluded,

“[i]f either party were to bring an action for breach of the Term Sheet, a court

would be able to order specific performance or award damages in the absence of an

agreed upon liquidated damages provision.”

3. Any dispute regarding who is responsible for paying the judgment is

mooted by our decision to uphold the district court’s order enforcing the settlement

agreement. NTG contends that the district court erred in ordering “Defendants”

rather than “NTG” specifically to pay the settlement amount, but NTG has not

contested that it, rather than any other defendant, paid the judgment pending

appeal.1

4. The district court did not abuse its discretion by denying NIC’s motion

for sanctions pursuant to the settlement agreement. NIC moved for sanctions

pursuant to both the district court’s inherent sanctioning authority and 28

U.S.C. § 1927 based on a proposal made by NTG’s counsel during the settlement

1 Moreover, any error in the district court’s order appears to be merely clerical.

Thus, we affirm without prejudice to NTG seeking relief in the district court in the form of a Rule 60(a) motion.

6 discussions. The district court properly evaluated the questions of bad faith, as

required for inherent sanctions, and recklessness, as required for § 1927 sanctions.

See Fink v. Gomez, 239 F.3d 989, 993 (9th Cir. 2001). NIC fails to demonstrate

clear error. Because the absence of bad faith or recklessness proved dispositive to

the motion that was before the district court, the district court was not obligated to

explicitly rule on NIC’s arguments under California Rule of Professional Conduct

5.6.

5. The district court did not abuse its discretion by sanctioning NTG and its

attorneys for filing a counterclaim in violation of the court’s scheduling order. The

district court’s scheduling order set a deadline to file “all motions to join other

parties or to amend the pleadings.” A scheduling order “controls the subsequent

course of the action” unless modified by the court upon a showing of good cause.

Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608 (9th Cir. 1992). And

Rule 16 permits the district court to issue sanctions for violation of a scheduling

order. Fed. R. Civ. P. 16.

NTG filed its counterclaim, which added several new parties, well after the

scheduling order’s deadline, without making any effort to seek a modification of

that order. Litigation of the counterclaim would necessarily have required

modification of the schedule the district court had set. In light of NTG’s failure to

seek leave and the significant disruption that litigation of the counterclaim would

7 have caused, including recusal of NIC’s counsel, the district court was well within

its discretion to issue sanctions based upon the scheduling order violation. 2 See

Fed. R. Civ. P. 16(f).

AFFIRMED.

2 Because we affirm the sanctions order on Rule 16(f) grounds, we do not reach the

Rule 11 issue.

8 FILED FEB 7 2024 Natural-Immunogenics Corp. v. Newport Trial Group, No. 22-55990 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS BUMATAY, Circuit Judge, concurring in the judgment in part and dissenting in part:

I concur with the conclusion that (1) the district court properly determined

that the parties’ Term Sheet was a binding and enforceable agreement, subject to

further negotiations on the scope of the confidentiality of the settlement terms and

the amount of liquidated damages; (2) any error by the district court in ordering the

“Defendants,” rather than Newport Trial Group (“NTG”) alone, to pay the settlement

amount was mooted by NTG’s actions; and (3) the district court did not abuse its

discretion in declining Natural-Immunogenics Corp.’s motion for sanctions.

But I would reverse the district court’s sanction of attorneys David Darnell

and James Sabovich. While the filing of the counterclaim may have been aggressive

and potentially disruptive, we must be sensitive to the dangers of “chill[ing] vigorous

advocacy.” In re Keegan Management Co., Securities Litigation, 78 F.3d 431, 435

(9th Cir. 1996) (simplified).

First, it was an abuse of discretion to sanction the attorneys under Rule 11.

While I don’t necessarily disagree with the district court’s legal conclusions, it took

considerable analysis to show that the counterclaim violated the statute of limitations

and the Noerr-Pennington doctrine. So it’s hard to say that asserting the

counterclaim was baseless. See Townsend v. Holman Consulting Corp., 929 F.2d

1358, 1362 (9th Cir. 1990).

1 Second, while a closer question, the district court also abused its discretion in

sanctioning the attorneys for violating its scheduling order under Rule 16(f). Darnell

and Sabovich contend that they did not need to seek leave to file their counterclaim

because it was a compulsory counterclaim. Although unwise not to seek permission

first, it is at least colorable that they thought that Rule 13(a) required the filing

notwithstanding the scheduling order. We have never addressed this question. And

it has been raised before. See Olenicoff v. UBS AG, 2011 WL 13225083, at *2 (C.D.

Cal. 2011) (“Defendants argue that Rule 16(b) should not apply because the

Scheduling Order only applies to amended pleadings, not proposed

counterclaims.”). Nor did the district court find this argument was made in bad faith.

Given all this, I would reverse the sanctions against Darnell and Sabovich.