Roadrunner Intermodal Services, LLC v. T.G.S. Transportation, Inc. ( 2019 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 ROADRUNNER INTERMODAL No.: 1:17-cv-01207-DAD-BAM, 1:17-cv- SERVICES, LLC, a Delaware limited 01056-DAD-BAM (consolidated) 12 liability company, 13 Plaintiff, ORDER DENYING PLAINTIFF AND 14 v. COUNTER-DEFENDANT JEFFREY COX’S MOTION FOR RECONSIDERATION 15 T.G.S. TRANSPORTATION, INC., a California corporation, and DOES 1-10, 16 Defendants. (Doc. No. 202) 17 18 JEFFREY COX, 19 Plaintiff, 20 v. 21 ROADRUNNER INTERMODAL SERVICES, LLC, a Delaware limited 22 liability company, CENTRAL CAL TRANSPORTATION, LLC, a Delaware 23 limited liability company, and DOES 1 through 50, 24 Defendants. 25 26 27 28 1 ROADRUNNER INTERMODAL SERVICES, LLC, a Delaware limited 2 liability company, 3 Counter-Plaintiff and Defendant, 4 v. 5 JEFFREY COX, 6 Counter-Defendant and 7 Plaintiff. 8 9 This matter is before the court on Jeffrey Cox’s motion for reconsideration of the court’s 10 March 27, 2019 order denying Cox’s motion for partial summary judgment. (Doc. No. 202-1.) A 11 hearing on this motion for reconsideration was held on May 21, 2019. Attorney Kurt Kappes 12 appeared telephonically on behalf of defendants Roadrunner Intermodal Services, LLC 13 (“Roadrunner”) and Central Cal Transportation (“Central Cal”). Attorney Howard Sagaser 14 appeared on behalf of Jeffrey Cox (“Cox”). Having reviewed the parties’ briefing and heard oral 15 argument, and for the reasons that follow, Cox’s motion for reconsideration will be denied. 16 FACTUAL BACKGROUND 17 The factual background of this case has been discussed in this court’s prior orders denying 18 Roadrunner’s motion for a preliminary injunction and denying Cox’s partial motion for summary 19 judgment. (See Doc. Nos. 90 at 2–4; 199 at 2–4.) That background will not be repeated here in 20 its entirety. In summary, Roadrunner, Central Cal, and Cox, among other parties, entered into a 21 stock purchase agreement (“SPA”) on November 2, 2012, pursuant to which Roadrunner 22 purchased all the stock and assets of Central Cal and Double C Transportation, another trucking 23 company, for approximately $3.8 million.1 (Id.) The SPA also included an earn-out payment to 24 ///// 25 ///// 26 1 Roadrunner is an industry leader in providing regional and national drayage services throughout 27 the United States. (Doc. No. 22 at 3.) Central Cal is a smaller, regional trucking company that operates trucking routes within California, Nevada, and Oregon for clients throughout the 28 1 Cox if certain parameters regarding Central Cal’s earnings before interest, taxes, depreciation, 2 and amortization (“EBITDA”) were met. (Id. at 3.)2 3 Cox continued working for Central Cal after it was sold to Roadrunner. While working 4 for Central Cal, Cox noticed irregularities in Roadrunner and Central Cal’s accounting, which 5 affected the way the company’s EBITDA was being calculated. Cox was concerned that the 6 accounting irregularities were due to intentional fraud in violation of federal securities laws and 7 by September of 2016, communicated these concerns to executives at Roadrunner. (See Doc. No. 8 98 at ¶¶ 22–28.) 9 On or about January 30, 2017, Roadrunner publicly stated that it had become aware of 10 various accounting discrepancies within the company, and that the public should not rely on 11 various financial statements and associated reports previously filed by Roadrunner with the SEC. 12 (Id. at ¶ 37.) In January 2017, Cox’s role was changed from the Vice-President of Operations at 13 Central Cal to a sales role at Roadrunner. (Id. at ¶ 39.) In February 17, 2017, Cox and David 14 Chidester, another prior owner of Central Cal, initiated a suit against Roadrunner over issues 15 related to the earn-out payment, which was not resolved through a mediation. (See Doc. No. 113- 16 1 at 5–6.) Roadrunner terminated Cox on May 31, 2017. (Id. at 6.) On July 25, 2017, Cox filed 17 18 2 The SPA included several provisions that are at issue in this action. (See Doc. No. 113-2 at 5–8 (“SPA”).) First, the non-competition provisions of the agreement stated that Cox was not 19 permitted to acquire or work for or with any entity that engages in any facet of Central Cal’s businesses, or that competes with Roadrunner’s business. (SPA at § 7.4 (a)(i)(B).) Cox was also 20 not permitted to use his special knowledge of Central Cal’s business to compete with Roadrunner 21 in any aspect of Central Cal’s business. (Id. at § 7.4 (a)(i)(C).) The non-solicitation provision of the agreement prevented Cox from contacting Central Cal customers or inducing Central Cal 22 employees from leaving the company. (Id. at § 7.4(a)(ii)(B)-(D).) The non-disclosure provision also prohibited Cox from disclosing Central Cal’s confidential or trade secret information. (Id. at 23 § 7.4(a)(iii).) All of these provisions limited Cox’s conduct from the date of the closing until December 31, 2017 throughout the entire United States. (See id. at § 7.4(a)(i).) In addition, the 24 SPA included a savings provision that permitted substitution of a different duration, scope, or 25 area, if a court found that any of the restrictions imposed by the agreement were unreasonable. (Id. at § 7.4(c).) Additionally, the SPA acknowledged that the protective covenants were 26 “necessary to protect the legitimate, protectable interests of [Central Cal] . . . [and] the goodwill of the business of [Central Cal] and [Roadrunner] . . ..” (Id.) Attached to the SPA was a legal 27 opinion from Cox’s own counsel, opining that the SPA was “legal, valid and binding” and enforceable against the sellers, including Cox. (Doc. No. 121-1 at 55.) 28 1 a complaint in Fresno County Superior Court asserting causes of action relating to his termination 2 which he alleged was wrongful. (Id.) Cox accepted employment with T.G.S. Transportation, Inc. 3 (“T.G.S.”) beginning in July 2017. (Doc. No. 90 at 3.) Roadrunner filed its action against T.G.S. 4 in this court on August 7, 2017. 5 On February 7, 2018, the undersigned denied Roadrunner’s motion for a preliminary 6 injunction, granted T.G.S.’s motion to consolidate this case with Cox v. Roadrunner Intermodal 7 Services, LLC, et al., No. 1:17-cv-01207-DAD-BAM (E.D. Cal.), and granted Cox’s motion to 8 intervene. (Doc. No. 90.) On March 28, 2019, the court issued an order denying Cox’s motion 9 for partial summary judgment, which had sought a declaratory judgment that the non-competition 10 provisions of the parties’ SPA were unlawful and unenforceable. (Doc. No. 199.) The court held 11 that the non-competition provisions were properly analyzed under California law; that the non- 12 competition provisions were permitted under California Labor Code § 16601 because they were 13 executed as an adjunct to the sale of goodwill; and that the non-competition provisions of the 14 SPA could be narrowly construed so as to be enforced only in areas where Central Cal carried on 15 business and/or had established goodwill. (Id.) 16 LEGAL STANDARD 17 Federal Rule of Civil Procedure 60(b)(1) provides that “[o]n motion and upon such terms 18 as are just, the court may relieve a party. . . from a final judgment, order, or proceeding” for 19 “mistake, inadvertence, surprise, or excusable neglect,” or “any other reason justifying relief from 20 the operation of judgment.” Relief under Rule 60 “is to be used sparingly as an equitable remedy 21 to prevent manifest injustice and is to be utilized only where extraordinary circumstances” exist. 22 Harvest v. Castro, 531 F.3d 737, 749 (9th Cir. 2008) (internal quotations marks and citation 23 omitted) (addressing reconsideration under Rule 60(b)(1)–(5)). The moving party “must 24 demonstrate both injury and circumstances beyond his control.” Id. (internal quotation marks and 25 citation omitted). Further, Local Rule 230(j) requires, in relevant part, that in moving for 26 reconsideration of an order denying or granting a prior motion, a party must show “what new or 27 different facts or circumstances are claimed to exist which did not exist or were not shown” 28 previously, “what other grounds exist for the motion,” and “why the facts or circumstances were 1 not shown” at the time the substance of the order which is objected to was considered. 2 “A motion for reconsideration should not be granted, absent highly unusual 3 circumstances, unless the district court is presented with newly discovered evidence, committed 4 clear error, or if there is an intervening change in the controlling law,” and it “may not be used to 5 raise arguments or present evidence for the first time when they could reasonably have been 6 raised earlier in the litigation.” Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 7 F.3d 873, 880 (9th Cir. 2009) (internal quotations marks and citations omitted); Kona 8 Enterprises, Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000). 9 DISCUSSION 10 Cox moves for reconsideration pursuant to Federal Rule of Civil Procedure 60(b) and 11 Local Rule 230(j), arguing that the court erred in reforming the SPA; that newly discovered 12 evidence necessitates a different holding; and that, because reformation is inappropriate, the court 13 should grant Cox’s motion for partial summary judgment. (See Doc. No. 202-1 at 10.) 14 A. Whether Reconsideration Should Be Granted Based on New Evidence 15 As noted, Cox argues that the court should reconsider its decision to reform the SPA’s 16 non-competition clause due to newly discovered evidence. (Doc. No. 202-1 at 11.) The “newly 17 discovered evidence” that Cox points to is the result of an arbitration involving the earn-out 18 provisions of the SPA, in which an arbitrator, mutually appointed by the parties, determined that 19 “Roadrunner is obligated to pay . . . Cox and Chidester an earn-out payment pursuant to Section 20 1.5 of the SPA in the amount of $2,100,086.” (Id. at 12.) The arbitration occurred in the context 21 of a separate lawsuit, in which Cox and Chidester sued Roadrunner and Central Cal for breach of 22 contract claims related to the earn-out payments provided for in the SPA. (See id. at 11.)3 23 3 On June 11, 2019, Cox filed with this court a request for judicial notice of the order from the 24 Los Angeles Superior Court confirming this arbitration award. (Doc. No. 219.) Pursuant to the 25 Federal Rule of Evidence 201(b), a court may “judicially notice a fact that is not subject to reasonable dispute because it: (1) is generally known within the trial court’s territorial 26 jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). Public records are properly the subject of 27 judicial notice because the contents of such documents contain facts that are not subject to reasonable dispute, and the facts therein “can be accurately and readily determined from sources 28 1 Assuming arguendo that the order confirming an arbitration award to Cox is evidence,4 2 the court is not persuaded that this evidence is either new or could not have been presented prior 3 to the order of which reconsideration is now sought. The arbitrator’s decision was issued on 4 March 5, 2019, while the court did not issue its order denying Cox’s motion for summary 5 judgment until March 28, 2019. (See Doc. No. 199.) In the interim, Cox did not submit notice of 6 the arbitrator’s decision to this court to supplement his motion for partial summary judgment. 7 Cox argues, however, that “the relevance of the arbitrator’s decision to the Court’s decision . . . 8 did not become apparent until after the court decided, on its own initiative, to reform the 9 contract.” (Doc. No. 209 at 6.) 10 For several reasons, the court is skeptical that Cox was blindsided by the court’s decision 11 to reform the non-competition provisions by limiting its scope. First, Cox’s motion for partial 12 summary judgment included a summary of the earn-out matter that was the subject of the 13 arbitration award as part of the factual background of the case. (See Doc. No. 113-1 at 5–6.) If 14 Cox thought the earn-out matter was relevant to his motion, it would have been reasonable to 15 update the court upon issuance of the arbitrator’s decision. Second, Cox’s own reply in support 16 of his motion for partial summary judgment requested that the court partially enforce5 the non- 17 18 Inc., 499 F.3d 1048, 1052 (9th Cir. 2007). A court “may take notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct 19 relation to matters at issue.” U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992) (quoting St. Louis Baptist Temple, Inc. v. FDIC, 605 F.2d 20 1169, 1172 (10th Cir. 1979). Here, Cox requests judicial notice of a state court order confirming 21 an arbitration award, which is relevant to his motion for reconsideration. (See Doc. No. 219.) Accordingly, Cox’s request for judicial notice is granted. 22 4 Roadrunner contests that the arbitrator’s March 5, 2019 finding is a legal conclusion rather than 23 a finding of fact but provides no legal authority in support of this assertion. (See Doc. No. 206 at 6–7.) 24 25 5 The undersigned acknowledges that it may have imprecise in its prior order in referring to the court’s “reforming” of the contract, since that word choice could be construed as the court having 26 greater discretion in defining the contract than it actually exercised. (See Doc. No. 199 at 18–19.) It may well have been more accurate to state that the court was merely enforcing the contract to 27 the extent permitted by law as directed by its savings provision. Nonetheless, to limit any confusion, the court will continue to refer to its “reformation” of the non-competition provisions 28 1 competition provisions. (See Doc. No. 124 at 8.) In this regard, Cox himself argued that the 2 court should “refuse to modify the illegal agreement” or alternatively, “if instead the court 3 modifies the non-compete provisions” (i.e., reform the contract), “it is respectfully requested the 4 court modify it to be at or less than 55 months . . ..” (Id.) Despite himself requesting that the 5 court consider limiting the non-competition provision while enforcing the contract, Cox failed to 6 present the equitable arguments in support of his motion for partial summary judgment that he 7 now advances for the first time in his motion for reconsideration. See Kona Enterprises, Inc. v. 8 Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000) (“A Rule 59(e) motion may not be used to 9 raise arguments or present evidence for the first time when they could reasonably have been 10 raised earlier in the litigation.”) 11 Third, in its moving for a preliminary injunction, Roadrunner specifically argued that the 12 savings clause, found at section 7.4(c) of the parties’ SPA, was valid under California law.6 (See 13 Doc. No. 63 at 6–8.) Roadrunner’s argument in this regard certainly put Cox on notice that 14 reformation of the contract pursuant to the savings provision was a possibility. Finally, in 15 briefing the motion for partial summary judgment, the parties both cited to the decision in 16 Strategix, Ltd., 142 Cal. App. 4th at 1074, in which that court discussed how “[c]ourts have ‘blue 17 penciled’ noncompetition covenants with overbroad or omitted geographic and time restrictions 18 to include reasonable limitations.” (See Doc. Nos. 113-1 at 10; 121 at 10.) For all of these 19 reasons, Cox was on notice that the court could potentially narrow the non-competition provisions 20 of the SPA and partially enforce it. 21 Nonetheless, the court is somewhat sympathetic to Cox’s contention that it ruled in a 22 manner that the parties did not fully anticipate and on legal grounds that were not fully briefed by 23 the parties in connection with his motion for partial summary judgment. Therefore, in the 24 interests of justice, the court will consider Cox’s new arguments as to why the non-competition 25 provision of the SPA should not be reformed, as well as the evidence upon which those 26 arguments are based. 27 6 For reasons that are not clear to the court, Roadrunner did not advance that argument in its 28 1 B. The Court Did Not Err in Reforming the SPA 2 Cox argues that reformation of the non-competition provisions is inappropriate. Below, 3 the court will explain why it disagrees with this contention without repeating the analysis set forth 4 in its March 28, 2019 order which is incorporated herein.7 5 1. Reformation Is Appropriate Pursuant to the Savings Provision 6 As a preliminary matter, the court finds that section 7.4(c) of the SPA explicitly 7 contemplates contract reformation and states: 8 Savings Provisions. If at the time of enforcement of any of the covenants contained in Section 7.4(a) above (the “Protective 9 Covenants”), a court shall hold that the duration, scope or area restrictions stated therein are unreasonable under circumstances then 10 existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the 11 stated duration, scope or area and that the court shall be allowed and directed to revise the restrictions contained herein to cover the 12 maximum period, scope and area permitted by law. 13 (Doc. No. 113-2 at 7–8) (italics indicate emphasis added). The parties’ SPA, which was attached 14 to Cox’s motion for partial summary judgment, directs the court to do exactly what it did: narrow 15 the geographic scope of the non-competition provision to make it enforceable under California 16 law. Roadrunner did not direct the court to the savings provision in its opposition to Cox’s 17 motion for partial summary judgment but had previously discussed that provision in moving for a 18 preliminary injunction. (See Doc. No. 63 at 6–8.) In ruling on Cox’s motion for partial summary 19 judgment seeking declaratory relief, the court reviewed the entire SPA, including the savings 20 provision. 21 “Reformation is an equitable remedy the essential purpose of which is to ensure the 22 contract, as reformed, reflects the parties’ mutual intention.” Komorsky v. Farmers Ins. Exch., 33 23 7 For example, Cox urges the court to take the approach set forward in Strategix , Ltd. v. 24 Infocrossing West, Inc., 142 Cal. App. 4th 1068, 1074 (2006) to find that an overbroad non- 25 competition provision is illegal. (See Doc. No. 202-1 at 26–27.) The court cited and considered Strategix in its prior order, but found the reasoning of cases such as Hill Med. Corp. v. Wycoff, 86 26 Cal. App. 4th 895, 902 (2001) (stating that a non-competition provision may be restructured in “a situation in which an otherwise valid covenant covers an unreasonably large geographical area or 27 is unreasonably long in duration.”) to be more persuasive. (See Doc. No. 199 at 18.) The court will not reiterate its already provided reasoning as to why the non-competition provisions of the 28 1 Cal. App. 5th 960, 974, as modified on denial of reh’g (Mar. 29, 2019), review denied (June 19, 2 2019). By including the savings provision in their SPA, the parties demonstrated their intent to 3 be bound by non-competition provisions for the “maximum period, scope and area permitted by 4 law.” (See Doc. No. 113-2 at 8.) “Reformation may be had for a mutual mistake or for the 5 mistake of one party which the other knew or suspected, but in either situation the purpose of the 6 remedy is to make the written contract truly express the intention of the parties.” Komorsky, 33 7 Cal. App. 5th at 974 (citing Lemoge Electric v. County of San Mateo, 46 Cal.2d 659, 663 (1956)). 8 Here, the parties were mistaken regarding the enforceability of certain non-competition 9 provisions of their agreement. Both Cox and Roadrunner were sophisticated parties and 10 consulted independent counsel, who advised them that the non-competition provisions were 11 enforceable under California law. Cox cannot seriously dispute that, at the time of contract 12 formation, the parties intended to ensure that Cox would not compete with Roadrunner by joining 13 a competitor in California, such as T.G.S. See also Lemoge Elec. v. San Mateo Cty., 46 Cal. 2d 14 659, 663 (1956); Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 123–24 15 (2000) (“Two reasons for severing or restricting illegal terms rather than voiding the entire 16 contract appear implicit in case law. The first is to prevent parties from gaining undeserved 17 benefit or suffering undeserved detriment as a result of voiding the entire agreement — 18 particularly when there has been full or partial performance of the contract.”). Therefore, in light 19 of the savings provision in the parties’ SPA, the manner in which the court reformed the contract 20 reflected the intent of the parties to be bound by a non-competition provision that was enforceable 21 under California law. 22 2. Reformation Is Appropriate Pursuant to California Civil Code § 3399 23 Cox next argues that in reforming the contract, the court omitted any reference to 24 California Civil Code § 3399, which does not permit sua sponte reformation. (Doc. No. 202-1 at 25 20.) California Civil Code § 3399 states: 26 When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written 27 contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that 28 1 intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value. 2 3 However, § 3399 does not indicate that it provides the exclusive basis for reformation. Rather, 4 “[i]t is well settled that the remedy of reformation is equitable in nature and not restricted to the 5 exact situations stated in section 3399.” Jones v. First Am. Title Ins. Co., 107 Cal. App. 4th 381, 6 388 (2003), as modified on denial of reh’g (Apr. 23, 2003) (citing Demetris v. Demetris, 125 Cal. 7 App. 2d 440, 443 (1954)). Therefore, an equitable remedy such as reformation is not limited to 8 circumstances explicitly outlined in § 3399, especially here, where the contract at issue includes a 9 specific savings provision and contemplates the reformation of the contract to cover the 10 maximum period, scope, and area permitted by law. 11 The court is not aware of, and Cox has not cited, any cases standing for the proposition 12 that the court may narrow a non-competition agreement pursuant to § 16601 only at the request of 13 one party. In the order denying Cox’s motion for partial summary judgment, the court noted that 14 “California courts have reformed contracts and narrowly construed non-competition agreements 15 if they appeared in the context of the sale of goodwill.” (Doc. No. 199 at 18.) “Several decisions 16 ‘saved’ covenants not to compete by narrowly construing them, but these covenants were 17 contained in agreements to sell goodwill, where such covenants are permitted under Business and 18 Professions Code section 16601.” Kolani v. Gluska, 64 Cal. App. 4th 402, 406 (1998) (making 19 no mention that courts that narrowly construed covenants not to compete could only at the request 20 of a party). Cox has failed to offer clear authority suggesting that the March 28, 2019 order was 21 erroneous as a matter of law. Having reconsidered the legal basis for that order, the court adopts 22 it once again. 23 C. Even Considering Cox’s New Evidence, Reformation Was Appropriate 24 Cox argues that the court should not have reformed the non-competition provisions of the 25 SPA due to the arbitrator’s finding, which was later confirmed by the state court, that Roadrunner 26 owes Cox and Chidester earn-out payments $2,100,086.00. (See Doc. Nos. 202-1 at 11–13; 209 27 at 9; 219 at 9.) 28 ///// 1 1. Material Breach 2 In opposition to the pending motion for reconsideration, Roadrunner argues that the 3 breach of one covenant in the SPA does not prevent its enforcement of the non-competition 4 provisions, nor does it excuse Cox from performing in accordance with those provisions. (Doc. 5 No. 206 at 10–11.) Cox argues that, even if the court stands by its decision to reform the non- 6 competition provisions of the parties’ SPA, he should be excused from complying with those 7 provisions due to Roadrunner’s failure to pay him the earn-out payments in breach of the SPA. 8 (See Doc. No. 209 at 8–12.) 9 “When a party’s failure to perform a contractual obligation constitutes a material breach 10 of the contract, the other party may be discharged from its duty to perform under the contract.” 11 Brown v. Grimes, 192 Cal. App. 4th 265, 277 (2011) (citing 1 Witkin, Summary of Cal. Law 12 (10th ed. 2005) Contracts, §§ 813, 814, p. 906 (Witkin)). “Normally the question of whether a 13 breach of an obligation is a material breach, so as to excuse performance by the other party, is a 14 question of fact.” Brown, 192 Cal. App. 4th at 277 (citing cases); see also Crowley v. Epicept 15 Corp., 883 F.3d 739, 750 (9th Cir. 2018) (“The jury thus asked the court to resolve a factual 16 issue—whether the [party’s] breach was material—that the jury was charged with deciding.”). 17 Here, there is evidence supporting the position of both parties to the SPA on the question 18 of whether Roadrunner’s failure to pay the earn-out payment constituted a material breach of that 19 agreement. In the arbitration proceeding, the arbitrator was not asked to determine if either party 20 breached the earn-out provision, but rather merely concluded that Roadrunner owed Cox and 21 Chidester $2,100,086.00. (See Doc. No. 219 at 9.) On one hand, the arbitrator found that Cox 22 should have received approximately $1,050,000.00 in earn-out payments from Roadrunner–a 23 sizable sum compared to the approximately $130,946.00 cash payment that Cox states that he 24 received from the SPA. (See Doc. No. 209 at 10–11.) On the other hand, however, the SPA by 25 its terms actually provided that Roadrunner would buy all of Cox’s shares of Central Cal and 26 Double C Transportation for $3,850,000, after absorbing an unknown amount of the debt amassed 27 by those two companies. (See Doc. No. 219 at 5.) 28 ///// 1 Based on the evidence before it in connection with Cox’s motion for partial summary 2 judgment and now on his motion for reconsideration of the court’s order denying that motion, the 3 court cannot conclude that Roadrunner materially breached the SPA because based upon that 4 evidence, a reasonable jury could reach a different conclusion. Therefore, upon reconsideration, 5 the court will not alter its prior order denying Cox’s motion for partial summary judgment. Of 6 course, at the trial of this action, Cox will be allowed to present evidence and argue that 7 Roadrunner’s breach was “a material breach [that] excuses further performance by the innocent 8 party.” Plotnik v. Meihaus, 208 Cal. App. 4th 1590, 1602 (2012). 9 2. Unclean Hands 10 Cox also argues that reformation of the non-competition provisions of the parties’ SPA is 11 barred by the doctrine of unclean hands because, as found by the arbitrator, Roadrunner has 12 refused to pay him contractually designated earn-out payments. (Doc. No. 202-1 at 13–17.) 13 Roadrunner responds that Cox has not established that it has unclean hands and that such a 14 contention involves disputed issues of fact to be determined by a trier of fact. (Doc. No. 206 at 15 11–12.) 16 “The doctrine [of unclean hands] demands that a [party] act fairly in the matter for which 17 he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be 18 denied relief, regardless of the merits of his claim.” Kendall-Jackson Winery, Ltd. v. Super. Ct., 19 76 Cal. App. 4th 970, 978 (1999), as modified on denial of reh’g (Jan. 3, 2000) (citing cases). 20 “Under California law regarding the applicability of the unclean hands defense, ‘[t]he focus is the 21 equities of the relationship between the parties, and specifically whether the unclean hands 22 affected the transaction at issue.’” Biller v. Toyota Motor Corp., 668 F.3d 655, 667 (9th Cir. 23 2012) (quoting Jaramillo v. County of Orange, 200 Cal. App. 4th 811, 820 (2011)). Generally, 24 the question of whether a party has unclean hands is a question of fact. See Kendall-Jackson 25 Winery, 76 Cal. App. 4th at 978 (citing CrossTalk Prod., Inc. v. Jacobson, 65 Cal. App. 4th 631, 26 639 (1998)); see also Andresen v. Int’l Paper Co., No. 2:13-cv-02079-CAS-AJW, 2014 WL 27 12587049, at *10 (C.D. Cal. Oct. 28, 2014) (citing cases). 28 ///// 1 The court’s reasoning with respect to Cox’s argument that his motion for partial summary 2 judgment should have been granted based upon his unclean hands defense is similar to its 3 reasoning with respect to his argument that Roadrunner’s actions constituted a material breach of 4 the SPA—thereby entitling him to partial summary judgment. Though the arbitrator determined 5 the amount of earn-out payments that Roadrunner owed Cox, the arbitrator did not find as a 6 matter of law that Roadrunner breached the SPA. (See Doc. No. 202-3 at 154–155.) At 7 arbitration, Cox complained of Roadrunner’s failure to make the proper earn-out payments and 8 the arbitrator decided the amount owed. Cox has not presented any authority in his pending 9 motion which persuades the court that this determination by the arbitrator, as a matter of law, 10 excuses his performance under the parties’ non-competition provisions. Rather, at most, Cox has 11 established an issue of triable fact for a jury to resolve in this regard. 12 3. Laches 13 Cox next argues that the court’s March 28, 2019 order was issued in error because 14 previously, Roadrunner merely sought to enforce the overbroad clauses of the non-competition 15 provisions as written and should now be prohibited from requesting their reformation. (Doc. No. 16 202-1 at 18.) Roadrunner responds that it did not delay in requesting reformation, and further, 17 that Cox suffered no prejudice as a result of any potential delay in its doing so. (Doc. No. 206 at 18 12–14.) 19 “The defense of laches requires unreasonable delay plus either acquiescence in the act 20 about which plaintiff complains or prejudice to the defendant resulting from the delay.” Conti v. 21 Bd. of Civil Serv. Commissioners, 1 Cal. 3d 351, 359 (1969). “If because of his delay in seeking 22 his remedy, without offering a satisfactory explanation for the delay, a prejudice results to his 23 adversary, he will be precluded from enforcing his demand.” Brown v. State Pers. Bd., 43 Cal. 24 App. 2d 70, 79 (1941). 25 Cox’s laches arguments are unconvincing, given the court’s reasoning that contract 26 reformation pursuant to the very specific savings provision of the SPA’s non-competition 27 agreement was appropriate. Cox agreed to the SPA and was on clear notice from the start that the 28 non-competition provisions could be narrowed by a court. Further, even if the court were to 1 accept the notion that Roadrunner in some way delayed in requesting reformation, Cox has failed 2 to establish that he has been prejudiced by any such a delay. In a declaration Cox has stated that 3 he 4 believed that Roadrunner could not enforce the non-competition provision against me because it was overbroad. Had I known that 5 Roadrunner would have sought to modify the non-competition provisions so to fix the geographical scope issue, I likely would have 6 sought additional legal opinions and possibly ceased working in the transportation industry until after the expiration of the non- 7 competition provision (December 31, 2017) or looked for a job in another state where the non-competition agreement could not be 8 enforced against me under any proposed modification. 9 (Doc. No. 202-2 at 3–4, ¶ 12.) Cox is equivocal at best in this declaration. His after–the–fact 10 attempt to explain what he would have done under certain circumstances fails to persuade the 11 court that he was prejudiced by Roadrunner’s actions.8 Based on the evidence submitted in 12 connection with Cox’s motion for partial summary judgment and the pending motion for 13 reconsideration, the court cannot conclude that the defense of laches precludes reformation of the 14 parties’ agreement. 15 4. Reformation Does Not Prejudice T.G.S. 16 Finally, Cox argues that even if Roadrunner could demonstrate fraud or a reformable 17 mistake, reformation of the non-competition clause is inappropriate because it prejudices the 18 rights acquired by T.G.S. (Doc. No. 202-1 at 23–25.) 19 Cox’s argument is based on the conclusion that T.G.S. acquired an interest in invalidating 20 the non-competition agreement for value when the company hired Cox following his termination 21 from Roadrunner. See Cal. Civil Code § 3399 (reformation is permitted “so far as it can be done 22 without prejudice to rights acquired by third persons, in good faith and for value.”); Lin v. 23 Coronado, 232 Cal. App. 4th 696, 705 (finding that the plaintiff could not avail herself of 24 reformation because a third party would be prejudiced). Even if the court were not skeptical of 25 this creative theory, Cox has failed to submit any evidence in support of an argument that T.G.S. 26 relied on future invalidation of the non-competition provision when they hired Cox. Absent such 27 8 Whether Cox, as he apparently suggests in his declaration, relied upon inaccurate or incomplete 28 1 | evidence, the court will not reconsider its prior order based on this argument. 2 CONCLUSION 3 Accordingly, Cox’s motion for reconsideration (Doc. No. 202) of the court’s March 27, 4 | 2019 order is denied. 5 | IT IS SO ORDERED. a " 6 /}/ fP A; Dated: _ August 21, 2019 wea rE 7 UNITED STATES DISTRICT JUDGE 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15