VCA Cenvet, Incorporated v. Chadwell Animal Hospital, LLC ( 2014 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1369
VCA CENVET, INCORPORATED, now known as Antech Diagnostics
Incorporated,
Plaintiff – Appellant,
v.
CHADWELL ANIMAL HOSPITAL, LLC,
Defendant – Appellee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. James K. Bredar, District Judge.
(1:11-cv-01763-JKB)
Argued: December 10, 2013 Decided: January 16, 2014
Before NIEMEYER, SHEDD, and KEENAN, Circuit Judges.
Affirmed in part, reversed in part, and remanded by unpublished
opinion. Judge Shedd wrote the opinion, in which Judge Niemeyer
and Judge Keenan joined.
ARGUED: Brian E. Casey, BARNES & THORNBURG, LLP, South Bend,
Indiana, for Appellant. Meighan Griffin Burton, WRIGHT,
CONSTABLE & SKEEN, LLP, Baltimore, Maryland, for Appellee. ON
BRIEF: David R. Pruitt, BARNES & THORNBURG LLP, South Bend,
Indiana; Patrick R. Buckler, SPENCE & BUCKLER, P.C., Towson,
Maryland, for Appellant. Michael Gordon, WRIGHT, CONSTABLE &
SKEEN, LLP, Baltimore, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
SHEDD, Circuit Judge:
I.
In December 2009, VCA Cenvet, Inc. (now known as “Antech
Diagnostics, Inc.”), a California corporation that provides
commercial laboratory services, entered into a Lab Services
Agreement (“LSA”) with Chadwell Animal Hospital, LLC, a
veterinary hospital in Abingdon, Maryland. 1 Under the LSA,
Chadwell agreed to purchase lab services exclusively from Antech
for four years in exchange for discounted prices and rebates.
Antech agreed that if Chadwell used its services exclusively and
purchased at least $78,000 worth of services per year (or $6,500
per month), Antech would issue Chadwell a “loyalty rebate” equal
to 17% of its purchases each month.
In October 2010, Chadwell learned that VCA Cenvet was a
subsidiary of the corporation VCA Antech. Chadwell’s principals,
Drs. Keith Gold and Ruby Schaupp, did not approve of Antech’s
business philosophy and decided they would no longer use
Antech’s services. Chadwell then entered into a lab services
contract with another provider.
Antech filed this lawsuit in the United States District
Court for the District of Maryland, alleging that Chadwell
breached the LSA’s exclusivity provision. Antech sought damages
1
By its terms, the LSA is governed by California law.
3
equal to its expected gross revenue for the remainder of the
LSA’s term, plus the rebates and discounts it had already given
Chadwell, totaling $273,000. In the alternative, Antech alleged
that Chadwell had been unjustly enriched by the receipt of
discounted rates premised on the completion of the LSA’s four-
year term. Antech sought restitution of the rebates and
discounts Chadwell received prior to the breach, totaling
$44,844. Chadwell conceded that it breached the LSA but argued
that the terms of the contract limited Antech’s recovery to
$16,096.66, the amount of the rebates.
The parties filed cross-motions for summary judgment.
Chadwell argued that the terms of the LSA limited Antech’s
damages to repayment of the rebates and that awarding Antech its
lost profits would be unconscionable. 2 Antech appeared to argue
that it was entitled to recover both the rebates and its
expected gross revenue for the remainder of the four-year term. 3
2
Chadwell also argued that Antech was estopped from seeking
damages beyond the rebates and that Antech’s unjust enrichment
claim failed as a matter of law because there was an express
contract between the parties. The district court concluded there
was no equitable or promissory estoppel or unjust enrichment
claim. The parties have not appealed these decisions.
3
As the district court noted, Antech’s memorandum in
support of its motion for summary judgment was “somewhat opaque”
as to what judgment it would have the court enter. VCA Cenvet,
Inc. v. Chadwell Animal Hosp., LLC, 2012 WL 4005542, at *6 (D.
Md. Sept. 10, 2012).
4
The district court rejected Chadwell’s argument that the
default provision in Section 3.2 of the LSA limited Antech’s
recovery to repayment of the rebates. The court held that, if
Section 3.2 was a liquidated damages provision, it was void as a
penalty. The court also rejected Antech’s argument that it was
entitled to recover both the amount of the rebates and its
expected gross revenue. The court then explained that neither
party had “submitted the evidence or arguments necessary to
truly test whether there is any dispute of material fact between
them that would require resolution by a jury.” 2012 WL 4005542,
at *7. Accordingly, the district court held the motions for
summary judgment in abeyance and ordered further briefing on the
issue of lost profits.
In its supplemental briefing, Antech requested an order
awarding it damages in the amount of its lost profits, totaling
$198,644. In response, the district court held that Antech
failed to establish the occurrence and extent of its lost
profits with reasonable certainty and that an award of lost
profits would result in Antech’s unjust enrichment. The court
further held that even if Antech had established lost profits of
$198,644, such an award would be unconscionable. The district
court then concluded that Antech could not recover the discounts
it provided Chadwell under the LSA because it had provided
Chadwell the same discounts before the parties entered into the
5
contract. Finally, the court held that Antech was entitled to
recover $16,096.66 for the rebates. Accordingly, the district
court granted Chadwell’s motion for summary judgment, awarding
Antech $16,096.66 in damages, and denied Antech’s cross-motion.
On appeal, Antech argues that the district court erred in
denying its summary judgment motion and in granting summary
judgment for Chadwell. We may review the district court’s denial
of Antech’s motion for summary judgment because it is appealed
along with the order granting Chadwell’s cross-motion. See Nat’l
Coal. for Students with Disabilities Educ. & Legal Def. Fund v.
Allen, 152 F.3d 283, 293 (4th Cir. 1998).
II
We review both the grant of Chadwell’s motion for summary
judgment and the denial of Antech’s motion for summary judgment
de novo. See Henson v. Liggett Group, Inc., 61 F.3d 270, 274
(4th Cir. 1995). When faced with cross-motions for summary
judgment, we “review each motion separately on its own merits to
determine whether either of the parties deserves judgment as a
matter of law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th
Cir. 2003) (internal quotation marks omitted). In considering
each individual motion, we “resolve all factual disputes and any
competing, rational inferences in the light most favorable to
the party opposing that motion.” Id. (internal quotation marks
omitted). The party moving for summary judgment has the initial
6
burden of showing that no genuine issue of material fact exists
and that it is entitled to judgment as a matter of law. Estate
of Kimmell v. Seven Up Bottling Co. of Elkton, Inc., 993 F.2d
410, 412 (4th Cir. 1993).
A.
We first address the district court’s denial of Antech’s
motion for summary judgment, in which Antech sought $198,644 in
lost profits. Antech calculated these profits by subtracting its
estimated variable costs from its expected gross revenue for the
remainder of the four-year term. To determine its expected
revenue, Antech calculated its revenue under the LSA for 2010,
then applied a 4% annual increase for 2011-2013. Antech next
applied a constant 29% variable cost rate to to its expected
revenue for 2010-2013. Antech argues that the district court
erred in denying its summary judgment motion because Chadwell
failed to submit its own evidence of Antech’s lost profits and
therefore failed to create a genuine issue of material fact. We
disagree.
Under California law, a plaintiff in a breach of contract
case may recover damages for lost future profits when the
evidence makes their occurrence and extent reasonably certain.
See Grupe v. Glick, 160 P.2d 832, 840 (Cal. 1945). The award of
lost profits means the award of net, not gross, profits. Gerwin
v. Se. Cal. Ass’n of Seventh Day Adventists, 92 Cal. Rptr. 111,
7
119 (Cal. Ct. App. 1971). “Net profits are the gains made from
sales after deducting the value of the labor, materials, rents,
and all expenses, together with the interest of the capital
employed." Id. at 119-20 (internal quotation marks omitted).
Although Antech factored its variable costs into its
formulation of lost profits, it failed to account for its fixed
costs, which included “salaries & wages, contract labor,
benefits, travel, consulting services, repairs & maintenance,
freight & delivery, telephone, occupancy, rent, depreciation &
amortization, and administrative costs.” J.A. 337. Antech’s
proffered calculation of its lost profits is not sufficient to
support the grant of Antech’s summary judgment motion because
California law confines a plaintiff’s recovery for lost profits
to his profits after deducting all of his expenses. See Gerwin,
92 Cal. Rptr. at 119-20. Antech did include an estimation of its
fixed costs in the record, but because Antech failed to deduct
all of its costs from its expected revenue when it moved for
summary judgment, Antech has not established the occurrence and
extent of its lost profits as a matter of law. Accordingly, we
affirm the district court’s denial of Antech’s motion for
summary judgment. 4
4
Although the district court denied Antech’s motion for
summary judgment based on the insufficiency of Antech’s evidence
of its lost profits, we are not confined to the grounds relied
(Continued)
8
B.
We next review the district court’s grant of Chadwell’s
motion for summary judgment. Although the district court held
that Section 3.2 of the LSA is not an enforceable liquidated
damages provision, Chadwell argues on appeal that it was
entitled to summary judgment because Section 3.2 is a liquidated
damages clause that limits Antech’s recovery to return of the
rebates. In the alternative, Chadwell argues that summary
judgment was appropriate because awarding Antech its claimed
lost profits would be unconscionable and because Antech cannot
establish its claim for lost profits with reasonable certainty.
We disagree with each of these contentions.
1.
Chadwell first argues that this court should affirm the
district court’s grant of its motion for summary judgment
because Section 3.2 of the LSA is a liquidated damages provision
that limits Antech’s recovery to return of the rebates. 5 The
on by the district court and can affirm the district court’s
decision on any legal basis supported by the record. Bryant v.
Bell Atlantic Md., Inc., 288 F.3d 124, 132 (4th Cir. 2002).
5
Section 3.2 of the LSA states:
3.2 Default. If (i) Animal Hospital Owner
breaches the exclusivity provisions set forth in
Section 1 hereof . . . then such shall constitute an
event of default with respect to the Rebate. At any
(Continued)
9
purpose of a liquidated damages provision is to “stipulate[] a
pre-estimate of damages in order that the parties may know with
reasonable certainty the extent of liability for a breach of
their contract.” ABI, Inc. v. City of Los Angeles, 200 Cal.
Rptr. 563, 573 (Cal. Ct. App. 1984). Under Section 3.2 of the
LSA, Antech can recover the amount of the previously paid
rebates upon Chadwell’s breach of the LSA’s exclusivity
provision. This is not a liquidated damages provision because it
provides only for a return of the rebates paid prior to the
breach; it is not a “pre-estimate of damages” that Antech would
suffer as a result of the breach. See id. There is simply no
reasonable relationship between the amount of rebates that
time after the occurrence of an event of default,
Antech may declare the entire amount of the Rebates
previously paid to be billable and due immediately;
NOTE HOWEVER, if the Animal Hospital Owner lab volume
during any month falls below the stated rebate
threshold in [sic], the rebate will not be apply [sic]
to that month BUT that does not constitute default as
long as the exclusivity provisions set forth in
Section 1 are maintained. The remedies available to
Antech hereunder are intended to compensate Antech for
the rebate and discounts provided hereunder, which
rebate and discounts would not have been provided
unless Animal Hospital agreed to the Minimum Average
Annual Fee requirements set forth herein, the
requirements set forth in Section 1 regarding
exclusivity, and the payment for Laboratory Services
hereunder in a timely manner.
J.A. 23.
10
Antech may have paid before Chadwell’s breach and the actual
damages that Antech would suffer because of the breach.
Accordingly, Section 3.2 of the LSA is not a liquidated damages
provision, and it does not limit Antech’s recovery to return of
the rebates.
2.
Chadwell next argues that the district court properly
granted summary judgment in its favor because awarding Antech
its lost profits would be unconscionable. The district court
concluded that it would be unconscionable to award Antech
$198,644 in lost profits, explaining that the practical effect
of such an award would be to require Chadwell to pay for its
laboratory services twice for the three years remaining on the
LSA’s term—once to Antech for breaching the contract and once to
the replacement laboratory. The district court also expressed
concern that an award of lost profits would compensate Antech
nearly $200,000 for not performing any services and that Antech
did not detrimentally rely on the LSA because its agreement to
provide services was not exclusive.
California law is clear that lost profits are recoverable
as damages for breach of a contract where evidence makes their
occurrence and extent reasonably certain, Sargon Enters., Inc.
v. Univ. of S. Cal., 288 P.3d 1237, 1253 (Cal. 2012), and the
damages are not unconscionable and grossly oppressive, see Cal.
11
Civil Code § 3359. A damages award is excessive “only when it is
so grossly disproportionate to the injury suffered that the
award appears to be the product of passion or prejudice,” Saret-
Cook v. Gilbert, Kelly, Crowley & Jennett, 88 Cal. Rptr. 2d 732,
746 (Cal. Ct. App. 1999).
The lost profits claimed by Antech are reasonably certain,
and there is no suggestion they are the product of such passion
or prejudice. We therefore hold that the district court erred in
concluding that an award of Antech’s lost profits would be
unconscionable. 6
3.
Finally, Chadwell argues that we should affirm the grant of
summary judgment in its favor because Antech did not establish
its lost profits with reasonable certainty. In considering
Chadwell’s summary judgment motion, we view all inferences in
the light most favorable to Antech as the non-moving party, see
Hardwick ex rel. Hardwick v. Heyward, 711 F.3d 426, 433 (4th
Cir. 2013), keeping in mind that Chadwell bore the burden of
establishing that Antech’s recovery was limited to return of the
6
The district court acknowledged in its opinion that each
of the concerns it raised with respect to awarding Antech its
lost profits is a “natural consequence[] of allowing plaintiffs
to seek lost profits for breaches of requirements contracts like
this one.” VCA Cenvet, Inc. v. Chadwell Animal Hosp., LLC, 2013
WL 2151659, at *5 n.6 (D. Md. Feb. 22, 2013).
12
rebates as a matter of law, see Kimmell, 993 F.2d at 412.
Because we find that Chadwell failed to meet this burden, we
reverse the district court’s grant of Chadwell’s summary
judgment motion.
Antech introduced evidence of its lost profits in the form
of testimony from key executives, financial records detailing
actual invoices for services performed before Chadwell breached
the LSA, and documentation estimating Antech’s expected revenue
and projected costs. Viewing the evidence before the district
court in the light most favorable to Antech, the record tended
to show the occurrence and extent of Antech’s lost profits. See
Sargon Enters., 288 P.3d at 1253. Although Antech’s calculation
of its lost profits alone cannot support the damages award as a
matter of law, we find that Antech has introduced evidence
sufficient to allow a proper calculation damages. Accordingly,
we reverse the grant of Chadwell’s motion for summary judgment.
III.
For the foregoing reasons, we affirm the denial of Antech’s
motion for summary judgment, reverse the grant of Chadwell’s
motion for summary judgment, and remand for further proceedings
consistent with this opinion.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED
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