Clear9 Communications v. Futurewei Technologies etc. CA4/1 ( 2020 )

Filed 8/31/20 Clear9 Communications v. Futurewei Technologies etc. CA4/1
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
CLEAR9 COMMUNICATIONS, LLC, D076208
Plaintiff, Appellant, and Cross-
Respondent
(San Bernardino County
v. Super. Ct. No. CIV DS 1312899)
FUTUREWEI TECHNOLOGIES, INC.
AND HUAWEI TECHNOLOGIES
USA, INC.,
Defendants, Respondents, and
Cross-Appellants.
HUAWEI TECHNOLOGIES USA,
INC.,
Defendant, Respondent and
Cross-Appellant.
APPEALS from an order of the Superior Court of San Bernardino
County, Wilfred J. Schneider, Judge. Affirmed.
Shannon Gallagher for Plaintiff, Appellant and Cross-Respondent.
Bryan A. Merryman, J. Taylor Akerblom, White & Case, LLP for
Defendants, Respondents and Cross-Appellants.
Clear9 Communications, LLC (Clear9), based in Southern California, is
a provider of cellular telecommunications infrastructure equipment. In 2009,
Clear9 entered into a Distribution Agreement with Futurewei Technologies,
Inc. and Huawei Technologies USA, Inc. (collectively Huawei) to sell
equipment manufactured by Huawei. After years of difficulty between the
contracting parties, Clear9 eventually sued Huawei for breach of contract and
various tort claims. By the time the case reached trial, six of Clear9’s claims
remained for adjudication: four claims for interference with prospective
economic relations based on Huawei’s direct sales to Clear9’s customers; a
claim for tortious interference with contractual relations between Clear9 and
one of its customers, Leaco Rural Telecommunications Cooperative (Leaco);
and one claim for breach of the Distribution Agreement. After a 10-day trial,
the jury returned a special verdict in favor of Clear9 on each claim, awarding
damages of over $2.6 million.
Post-trial, Huawei moved for judgment notwithstanding the verdict
(JNOV) and, in the alternative, a new trial. The trial court granted JNOV in
part, and the motion for new trial in the alternative if its ruling on the JNOV
were reversed on appeal. The trial court agreed with Huawei’s assertion that
Clear9’s four claims for interference with prospective economic relations were
barred because those claims were based on conduct that constituted breach of
the parties’ Distribution Agreement. The court also concluded that the
$88,000 awarded by the jury for Clear9’s breach of contract claim was for
special damages, which were precluded by the Distribution Agreement’s
limitation of liability provision. The court rejected Huawei’s argument that
2
the $302,890 damage award for its tortious interference with Clear9’s
contract with Leaco were also barred as special damages.
Both Clear9 and Huawei have appealed the court’s order. Clear9
asserts the court erred by overturning the jury’s verdict on its four claims for
interference with prospective economic relations because Huawei forfeited its
assertion that the wrongful conduct found by the jury could not form the
basis for the claims as a matter of law. Clear9 also contends that even if the
issue is not forfeited, other evidence of wrongful conduct supports the jury’s
special verdicts. Clear9 next argues the limitation of liability provision in its
contract with Huawei is unenforceable. Finally, Clear9 challenges the court’s
denial of its motions to amend its complaint and for prejudgment interest.
In its cross-appeal, Huawei asserts that the court erred by rejecting its
challenge to the jury’s damage award on Clear9’s claim for tortious
interference with its contract with Leaco. As set forth herein, we reject both
parties’ challenges to the trial court’s rulings and affirm the order.
FACTUAL AND PROCEDURAL BACKGROUND
In October 2009, Clear9 entered into the Distribution Agreement,
which designated Clear9 as a distributor of Huawei’s “wireless and wireline
network products and solutions” in a territory defined as the United States of
America. The target market for the products and solutions was smaller,
regional cellular telephone carriers. Under the Distribution Agreement,
Clear9 would work with Huawei to determine what Huawei products and
solutions were appropriate for various carriers, then implement those
products and solutions for the carrier with Huawei’s support. Clear9’s
principals were experienced in the industry and believed they could help
Huawei and the carriers they were targeting expand cellular service in rural
areas of the country.
3
At the time the Distribution Agreement was entered, Clear9 had
existing relationships with two such carriers, Leaco and Flat Wireless, LLC
(Flat). The Distribution Agreement contained a non-exclusive list of carriers
for Clear9 to target, which included Leaco but not Flat. The Distribution
Agreement also contained a standard limitation of liability provision stating
that Huawei could not be held liable to Clear9 “for lost profits, diminution of
good will, or any other indirect, incidental, consequential, punitive or other
special damages . . . .”
In November 2010, Clear9 entered into a separate contract with Leaco,
with Huawei’s knowledge and support, to upgrade Leaco’s network using
Huawei’s equipment. After the contract with Leaco was executed and Clear9
began the installation process, problems with Huawei’s equipment quickly
developed. Huawei repeatedly stymied Clear9 in its attempts to fix the new
network’s issues. Testimony and evidence at trial showed Clear9 pleading
with Huawei representatives throughout 2011, 2012, and into 2013 to help it
obtain the functionality Leaco required. Witnesses for Clear9 and Leaco
testified there were large quantities of dropped calls, failed calls, and other
problems with the network, including the inability to dial 911. Leaco officials
also testified that network problems resulted in large losses of customers,
threatening the viability of its business.
Clear9 absorbed some of Leaco’s costs related to the problematic
Huawei equipment, giving Leaco over $300,000 in discounts on the amounts
Leaco owed Clear9 under their contract. In addition, throughout this two-
and-a-half-year period, the agreement between Leaco and Clear9 required
Clear9 to maintain a bond for the full amount of the $3 million-plus contract.
The bond premiums over that period cost Clear9 $88,000. In 2013, Leaco
finally abandoned the system that it contracted with Clear9 to provide, and
4
worked directly with Huawei to purchase additional equipment at significant
expense to avoid losing its investment in the upgrade project.
Thereafter, Clear9 attempted to engage in dispute resolution with
Huawei as required by the Distribution Agreement. When that effort failed,
Clear9 engaged counsel and on October 22, 2013, filed the instant lawsuit.
Initially, Clear9 pleaded five causes of action: (1) breach of contract, alleging
Huawei breached the Distribution Agreement; (2) tortious interference with
contract, related to the Leaco agreement; (3) tortious interference with
prospective business advantage (as to the Leaco agreement); (4) tortious
interference with prospective business advantage (as to the Flat agreement);
and (5) violation of California’s unfair competition law (Bus. & Prof. Code §
17200, et seq.). Clear9 also sought a punitive damage award. Huawei
counterclaimed, alleging Clear9 failed to make required payments under the
Distribution Agreement.
By the time of trial, Clear9 was pursuing all but its unfair competition
law claim against Huawei. Before trial, Huawei brought a motion in limine
to exclude evidence of punitive and special damages, or alternatively to
bifurcate the punitive damage phase of trial. The motion asserted that
Clear9’s only valid claim was for breach of contract, and that Clear9’s tort
claims were merely an attempt to circumvent the contract. Huawei argued
evidence of damages for the tort claims should be precluded by the
Distribution Agreement’s limitation of liability provision.
Clear9 opposed the motion to exclude special damages, but agreed to
bifurcate punitive damage evidence. At a pretrial conference the court
considered Huawei’s motion in limine. During the discussion, Huawei
asserted that all of the tortious conduct alleged by Clear9 constituted breach
of the Distribution Agreement and thus was not actionable. After initially
5
stating it was prepared to grant the motion to exclude special damages, the
court concluded that all compensatory damage evidence could be admitted
subject to later objection by Huawei. The court also accepted the parties’
agreement to bifurcate punitive damage evidence.
Trial began on January 10, 2017. Clear9’s witnesses testified that
Huawei breached the Distribution Agreement by interfering with its
provision of equipment and services to Leaco, including failing to provide
equipment that functioned properly, failing to provide adequate support for
its equipment, and engaging in direct negotiations with Leaco for the sale of
its products. Clear9’s witnesses also testified that Huawei sold or attempted
to sell equipment to Leaco, Flat, and other cellular telephone companies in
violation of the Distribution Agreement’s provision designating Clear9 as the
distributor for those companies. Huawei’s principal contact and project
manager for Clear9, Sharon Chua, countered with testimony that Huawei
went above and beyond what the Distribution Agreement required to attempt
to remedy the problems Leaco encountered. Chua also testified that the sales
Huawei made directly to Leaco and Flat occurred only after the expiration of
the Distribution Agreement.
At one point during her examination, Chua testified that she did not
believe all sales of equipment made by Clear9 to Leaco fell under the
Distribution Agreement. After this testimony, Clear9 made an oral motion to
amend its complaint to add a new claim for breach of contract in addition to
the alleged breaches of the Distribution Agreement. The trial court asked
Clear9 to brief the issue and Clear9 submitted a written motion near the
close of evidence. The court denied the motion, and the parties finished the
presentation of evidence and closing arguments.
6
The parties initially presented a set of proposed jury instructions and
special verdict forms to the court before the initial trial date in October
2016.1 At that time, Huawei’s proposed forms for the interference with
prospective economic relations claims asked the jury if it “engaged in
independently wrongful conduct” while Clear9’s version asked whether
Huawei “engaged in conduct to impair Clear9’s ability to sell equipment to
[Flat/Leaco/Third Parties]?” The parties submitted the same proposals in
January before trial began. At a conference after the close of evidence, the
parties agreed without any recorded discussion on the final versions of the
special verdict forms that were given to the jury.
Thereafter, the jury was instructed on and provided special verdict
forms for Clear9’s six claims2 and Huawei’s four counter-claims.3 After a
half-day of deliberation, the jury returned its verdict in favor of Clear9 on its
claims, awarding Clear9 $2,363,390 in total damages consisting of $88,000
for breach of contract, $302,890 for tortious interference with the Leaco
contract, and $1,972,500 for the four interference with prospective economic
relation claims, and rejecting Huawei’s claims.
The court entered judgment for Clear9 on March 24, 2017. Thereafter,
Clear9 filed a motion for prejudgment interest, and Huawei brought its
1 The trial was postponed to January 2017 to accommodate a witness’s schedule.
2 These were: (1) breach of contract, (2) intentional interference with contractual
relations with Leaco, (3) intentional interference with prospective economic relations
with Leaco, (4) intentional interference with prospective economic relations with Flat, (5)
negligent interference with prospective economic relations with Leaco, and (6) negligent
interference with prospective economic relations with Flat.
3 Huawei’s claims were: (1) breach of contract, (2) breach of the implied covenant
of good faith and fair dealing,(3) provision of goods and services, and (4) account
statement.
7
motions for JNOV and new trial. In its challenge to the jury’s verdicts on the
four interference with prospective economic relations claims, Huawei
asserted the verdicts required reversal because they were based only on
conduct that constituted a breach of the Distribution Agreement, and
therefore that conduct could not be wrongful as a matter of law. In its
opposition to the motion for JNOV, Clear9 argued that because Huawei
assisted in the preparation of the special verdict forms it waived its challenge
to the claims. Clear9 also asserted evidence of other wrongful conduct
supported the jury’s verdicts.
After briefing and a hearing on the motions, on May 25, 2017, the trial
court issued its order granting Huawei’s motion for JNOV as to the four
claims for interference with prospective economic relations, concluding the
claims failed as a matter of law because the only wrongful conduct alleged by
Clear9 to support them also constituted a breach of the Distribution
Agreement. The court also accepted Huawei’s challenge to the damages
awarded for Clear9’s breach of contract claim, concluding the award was for
special damages that were excluded by the Distribution Agreement’s
limitation of liability provision. In addition, the court granted a new trial in
the alternative. Lastly, the trial court denied the motion for JNOV as to the
jury’s verdict on Clear9’s claim for tortious interference with contractual
relations with Leaco and denied Clear9’s motion for prejudgment interest.
Both parties challenge the court’s post-trial order.
8
DISCUSSION
I
Intentional and Negligent Interference with Prospective Economic Relations
Clear9 asserts the trial court erred by granting Huawei’s motion for
JNOV for its four claims for tortious interference with prospective economic
relations: intentional and negligent claims related to Huawei’s business
dealings with Leaco and intentional and negligent claims related to its
dealings with Flat. Recognizing the law is not on its side substantively,
Clear9’s appeal is focused on forfeiture. Clear9 argues that Huawei
submitted special verdict forms and jury instructions that improperly allowed
the jury to determine what act satisfied the wrongful conduct standard and
that the doctrine of invited error precluded the court from considering
Huawei’s JNOV. Alternatively, Clear9 argues that even if the trial court did
not err by reaching the merits of Huawei’s motion for JNOV, the jury’s
findings on these claims are supported by sufficient evidence of other
wrongful conduct.
As we explain in further detail, we reject these arguments and
conclude Huawei did not forfeit its challenge to the jury’s special verdicts on
Clear9’s four interference with prospective economic advantage claims. The
law is clear that to find liability, the jury was required to determine whether
Huawei engaged in wrongful conduct that was not also a breach of contract.
Here, over Huawei’s repeated assertions that Clear9 had failed to allege
wrongful conduct that was not also a violation of the Distribution Agreement,
Clear9 asked the jury to find Huawei liable for these claims based solely on
such conduct. This was not an error precipitated by Huawei’s failure to
object to the special verdict forms. Rather, despite Huawei’s repeated
assertions that the interference with prospective economic advantage claims
9
were legally untenable, Clear9’s improper framing of these claims prevailed.
Further, because Clear9’s claims were adjudicated using special verdict
forms, this court cannot now infer findings in Clear9’s favor based on
evidence of other wrongful conduct.
A
“[T]he purpose of a JNOV is ‘to prevent the moving defendant from the
necessity of undergoing any further exposure to legal liability when there is
insufficient evidence for an adverse verdict.’ ” (Grail Semiconductor, Inc. v.
Mitsubishi Electric & Electronics USA, Inc. (2014) 225 Cal. App. 4th 786, 794.)
“The trial judge’s power to grant a judgment notwithstanding the verdict is
identical to his power to grant a directed verdict. [Citations.] The trial judge
cannot weigh the evidence [citation], or judge the credibility of witnesses.
[Citation.] If the evidence is conflicting or if several reasonable inferences
may be drawn, the motion for judgment notwithstanding the verdict should
be denied. [Citations.] ‘A motion for judgment notwithstanding the verdict of
a jury may properly be granted only if it appears from the evidence, viewed in
the light most favorable to the party securing the verdict, that there is no
substantial evidence to support the verdict. If there is any substantial
evidence, or reasonable inferences to be drawn therefrom, in support of the
verdict, the motion should be denied.’ ” (Hauter v. Zogarts (1975) 14 Cal. 3d
104, 110; accord, Sweatman v. Department of Veterans Affairs (2001) 25
Cal. 4th 62, 68.)
“On appeal, we review the motion de novo. ‘[W]e determine whether
substantial evidence supported the verdict, viewing the evidence in the light
most favorable to the party who obtained the verdict. [Citation.] We resolve
all conflicts in the evidence and draw all reasonable inferences in favor of the
verdict, and do not weigh the evidence or judge the credibility of witnesses.’ ”
10
(Linear Technology Corp. v. Tokyo Electron Ltd. (2011) 200 Cal. App. 4th 1527,
1532.)
B
The line between competitive business conduct and unlawful
interference with prospective economic advantage is often difficult to
pinpoint.4 (See Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11
Cal. 4th 376, 392 (Della Penna) [“Because ours is a culture firmly wedded to
the social rewards of commercial contests, the law usually takes care to draw
lines of legal liability in a way that maximizes areas of competition free of
legal penalties.”].) The elements of intentional interference with prospective
economic advantage are “(1) the existence, between the plaintiff and some
third party, of an economic relationship that contains the probability of
future economic benefit to the plaintiff; (2) the defendant’s knowledge of the
relationship; (3) intentionally wrongful acts designed to disrupt the
relationship; (4) actual disruption of the relationship; and (5) economic harm
proximately caused by the defendant’s action.” (Roy Allan Slurry Seal, Inc. v.
American Asphalt South, Inc. (2017) 2 Cal. 5th 505, 512.)
“The elements of negligent interference with prospective economic
advantage are (1) the existence of an economic relationship between the
plaintiff and a third party containing the probability of future economic
benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3)
the defendant’s knowledge (actual or construed) that the relationship would
be disrupted if the defendant failed to act with reasonable care; (4) the
defendant’s failure to act with reasonable care; (5) actual disruption of the
relationship; and (6) economic harm proximately caused by the defendant’s
4 The phrases “interference with prospective economic relations” and “interference
with prospective economic advantage” are used interchangeably.
11
negligence.” (Redfearn v. Trader Joe’s Co. (2018) 20 Cal. App. 5th 989, 1005.)
“ ‘The difference between intentional interference and negligent interference
with prospective economic advantage relates to the defendant’s intent.’ ” (Id.
at p. 1006.)
To state a claim for either negligent or intentional interference with
prospective economic advantage a plaintiff “has the burden of pleading and
proving that the defendant’s interference was wrongful ‘by some measure
beyond the fact of the interference itself.’ ” (Della Penna, supra, 11 Cal.4th at
pp. 392-393; see Ixchel Pharma, LLC v. Biogen, Inc. (Aug. 3, 2020, No.
S256927) 2020 WL 4432623, at *5 (Ixchel)5; Korea Supply Co. v. Lockheed
Martin Corp. (2003) 29 Cal. 4th 1134, 1159 (Korea Supply) [“an act is
independently wrongful if it is unlawful, that is, if it is proscribed by some
constitutional, statutory, regulatory, common law, or other determinable
legal standard”].) Further, there must be wrongful conduct that is
independent of a breach of contract by the defendant. (See JRS Products,
Inc. v. Matsushita Electric Corp. of America (2004) 115 Cal. App. 4th 168, 183
(JRS Products) [“a breach of contract claim cannot be transmuted into tort
liability by claiming that the breach interfered with the promisee’s
5 While this appeal was pending, the California Supreme Court issued Ixchel, which
extended the independently wrongful conduct requirement to a claim of interference with
the performance of an “at-will” contract. (Ixchel, supra, 2020 WL 4432623, at *8-9.)
The court’s holding was based on the similarity between a third party’s interference in an
at-will contractual arrangement and interference with a prospective economic
relationship. The court held that like a prospective economic relationship, “[a]t-will
contractual relations are . . . not cemented in the way that a contract not terminable at will
is. The interest in protecting the contract from interference more closely resembles the
interest in protecting prospective economic relationships than the interest in protecting a
contractual relationship that, by its terms, is expected to continue on pain of breach.” (Id.
at p. *8.) Ixchel reaffirms settled law that independently wrongful conduct is required for
a claim of interference with prospective economic advantage, and not required for claims
of interference with contractual relations that do not involve at-will contracts. (Ibid.)
12
business”]; Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7
Cal. 4th 503, 516-517 [“The fundamental differences between contract and
tort are obscured by the imposition of tort liability on a contracting party for
conspiracy to interfere with the contract. Whether or not a stranger to the
contract induces its breach, the essential character of a contracting party’s
conduct remains the same—an unjustified failure or refusal to perform.”].)
Put another way, damages cannot “be recovered for interference with
prospective economic advantage by one contracting party against another
based on conduct that would otherwise constitute a breach of the parties’
contract.” (JRS Products, supra, 115 Cal.App.4th at p. 179.)
C
Huawei’s motion for JNOV sought to invalidate the jury’s verdict on the
grounds that the wrongful conduct found by the jury also constituted a
breach of the Distribution Agreement. Huawei correctly asserted that the
law does not permit a breach of contract to support a claim for tortious
interference with prospective economic advantage and the trial court agreed.
Specifically, the trial court found that the conduct set forth in the special
verdict forms for all four claims— “attempting to sell and in some cases
actually selling its products directly to Clear9’s customers and potential
customers”—could not constitute wrongful conduct as a matter of law.
The four special verdict forms for interference with prospective
economic relations asked, “Did Huawei engage in wrongful conduct by
attempting to sell and in some cases actually selling its product directly to
Clear9’s customers or potential customers?” Likewise, in its operative
13
complaint and throughout the litigation Clear9 explicitly referred to this
same conduct as the basis for the breach of the Distribution Agreement.6
During discussion of Huawei’s motion in limine to exclude evidence of
punitive and special damages, Clear9’s counsel acknowledged the same
conduct constituted a breach of contract and formed the basis for the
intentional and negligent interference with prospective economic advantage
claims. Referring to the claims, he stated “[t]here’s an interference aspect of
it, but it is a breach of the contract as well.” Likewise, in his closing
argument, Clear9’s counsel asserted Huawei breached the agreement by
pursuing customers that Clear9 had exclusive rights to pursue under the
Distribution Agreement.
Thus, the record shows unequivocally that Clear9’s four interference
with prospective economic relations claims were based on conduct that also
constituted breach of the Distribution Agreement. As the trial court correctly
concluded, the policy of limiting interference with prospective economic
advantage claims to conduct that violates the law in some way outside the
purview of the parties’ contract, precludes recovery here. (See JRS Products,
supra,115 Cal.App.4th at p. 179 [“a party to a contract cannot recover
damages in tort for breach of contract”].)
6 The operative complaint’s first cause of action for breach of contract alleged
Huawei “breached the [Distribution] Agreement by, among other acts, attempting to
circumvent or actually circumventing Clear9 to sell equipment to both Flat and Leaco
directly, by providing equipment that either did not function properly or did not conform
to the customer’s requirements, by failing to provide support services, by asserting that
the Agreement had expired and that it was no longer obligated to perform its support
obligations pursuant to the Agreement, by refusing and failing to comply with the
alternative dispute resolution provisions of the Agreement, and by generally acting in
bad faith.”
14
D
Clear9’s primary argument on appeal, as it was in the trial court, is
that Huawei invited the error by not objecting to the special verdict forms.
This argument, however, mischaracterizes the proceedings and ignores
Clear9’s own responsibility to present its claims to the jury. The record
shows Huawei did not acquiesce to Clear9’s improper framing of the wrongful
conduct. Rather, Huawei argued the jury was required to consider whether
the conduct identified in the special verdict forms was independently
wrongful. Specifically, at the pretrial conference on January 10, 2017,
Huawei asserted its position that there was no tortious conduct alleged by
Clear9 that fell outside the bounds of the Distribution Agreement. During a
discussion about the contract’s limitation of liability provision, Huawei stated
that all of the tort claims advanced by Clear9 were in essence breach of
contract claims. Likewise, Huawei’s motion in limine seeking to exclude
evidence of special and punitive damages asserted the Distribution
Agreement precluded all of Clear9’s tort claims, stating “this is a simple
breach of contract case” and to “avoid payment obligations under the
Distributor Agreement, Clear9 preemptively filed this lawsuit alleging”
Huawei breached the agreement and, “[k]nowing that its contract claim[s]
lacked merit,” Clear9 “padded its lawsuit with . . . tortious interference
claims . . . .”
The same is true regarding the preparation of the special verdict forms
and the related jury instructions. At the initial pretrial conference in October
both parties submitted proposed verdict forms. For the interference with
prospective economic relations claims, Huawei submitted forms that asked
the jury if Huawei “engaged in independently wrongful conduct.” Clear9’s
proposed forms asked, more specifically, “did Huawei engage in conduct to
15
impair Clear9’s ability to sell equipment to [Flat/Leaco/Third Parties]?”
Revised forms submitted two days later did not alter the jury questions for
these claims.
Before the trial began in January, Huawei proposed the same verdict
forms it proposed in October while Clear9 revised its proposed forms to state:
“Did Huawei engage in conduct to impair Clear9’s ability to sell equipment to
[Leaco/Flat Wireless]?” At the conference about the forms after the close of
evidence, the court and parties discussed revised forms submitted the prior
day (and not included or identified in the record) but did not specifically
discuss the final versions of the forms given to the jury.
With respect to the jury instructions for the prospective interference
with economic relations claims, at the instruction conference, Huawei
requested a special instruction that stated:
“To prevail under the fifth element of interference with a
prospective economic relationship, Clear9 Communications, LLC
has the burden of proving that Huawei Technologies USA, Inc.’s
conduct was ‘independently wrongful’—i.e., wrongful by some
measure beyond the fact of the interference itself. An act is
independently ‘wrongful’ if it is ‘proscribed by some
constitutional, statutory, common law or other determinable
standard.” ¶ Ordinary competition, such as advertising or
solicitation, does not meet this standard. A company has a right
to select with whom to do business and on what terms.’ ”
16
Clear9 objected, arguing that the standard CACI instruction was sufficient
and the court refused the special instruction.7
At the continued conference on jury instructions the following morning,
the same special instruction was discussed. Huawei’s counsel asserted the
instruction was required under Korea Supply and it would be error not to
give it. The court then reversed its earlier decision, and agreed to give the
instruction. When the instructions were read, a slightly different version of
Huawei’s proposed special instruction was given to the jury: “The plaintiff
must show that the defendant’s conduct was independently wrongful. An act
is not independently wrongful merely because the defendant acted with
improper motive. An act is independently wrongful and it is unlawful, that
is, if it is prescribed by some constitutional, statutory, regulatory, or common
law or some other determinable legal standard.”
This record shows that Clear9’s assertion that Huawei acquiesced to
legally invalid verdict forms is inaccurate. Rather, Huawei asserted
consistently that the conduct at issue was encompassed by the contract and,
therefore, not actionable as a tort. This timeline also shows that Huawei
7 The CACI instruction, No. 2022, states: “[Name of plaintiff] claims that [name of
defendant] intentionally interfered with an economic relationship between
[him/her/ . . . it] and [name of third party] that probably would have resulted in an
economic benefit to [name of plaintiff]. To establish this claim, [name of plaintiff] must
prove all of the following: ¶ 1. That [name of plaintiff] and [name of third party] were in
an economic relationship that probably would have resulted in an economic benefit to
[name of plaintiff]; ¶ 2. That [name of defendant] knew of the relationship; ¶ 3. That
[name of defendant] engaged in [specify conduct determined by the court to be
wrongful]; ¶ 4. That by engaging in this conduct, [name of defendant] [intended to
disrupt the relationship/ [or] knew that disruption of the relationship was certain or
substantially certain to occur]; ¶ 5. That the relationship was disrupted; ¶ 6. That [name
of plaintiff] was harmed; and ¶ 7. That [name of defendant]’s conduct was a substantial
factor in causing [name of plaintiff]’s harm.” (Judicial Council of California Civil Jury
Instruction 2202.)
17
wanted the jury to answer the question of whether it engaged in
“independently wrongful conduct,” but that Clear9 sought to focus the jury’s
inquiry on conduct that fell within the framework of the Distribution
Agreement, i.e., Huawei’s sales and attempted sales of its products directly to
Leaco and Flat. In the end the verdict forms submitted to the jury were the
result of Clear9’s litigation strategy, not Huawei’s acquiescence.
The cases Clear9 relies on to support its contention that Huawei
invited an error on the special verdict form, thus forfeiting its challenge to
the verdict on these claims, are inapposite. These cases concern problems
with the verdict forms themselves. (See Taylor v. Nabors Drilling USA, LP
(2014) 222 Cal. App. 4th 1228, 1242-1243 [verdict form contained a
typographical error causing jury to skip two questions. Defendant forfeited
challenge where it failed to identify typo and there was no prejudice to it
since other parts of form made it clear the jury intended to find liability];
Henrioulle v. Marin Ventures, Inc. (1978) 20 Cal. 3d 512, 521 [holding failure
to object to improper verdict based on fact that majority of jury did not assent
to each special verdict question resulted in forfeiture], and Greer v. Buzgheia
(2006) 141 Cal. App. 4th 1150, 1158-1159 [defendant forfeited challenge to
portion of damages where special verdict form did not designate separate
categories of damages at issue].) Here, it is not the special verdict forms that
are the source of the error. Rather, the error is based in Clear9’s theory of
liability for these claims. As the trial court concluded, the doctrine of invited
error does not apply, and nothing deprived the court of its ability to rule on
Huawei’s motion for JNOV.
E
Clear9 next argues that even if Huawei’s sales to Clear9’s customers
cannot form the basis for the interference with prospective economic relations
18
claims, the jury’s verdict can be substantiated with evidence of other
wrongful conduct by Huawei.
As an initial matter, “[w]ith a special verdict, we do not imply findings
on all issues in favor of the prevailing party, as with a general verdict.
[Citation.] The verdict’s correctness must be analyzed as a matter of law.”
(Trujillo v. North County Transit Dist. (1998) 63 Cal. App. 4th 280, 285.) “A
special verdict presents to the jury each ultimate fact in the case, so that
‘nothing shall remain to the Court but to draw from them conclusions of law.’
(Code Civ. Proc., § 624.) This procedure presents certain problems: ‘ “The
requirement that the jury must resolve every controverted issue is one of the
recognized pitfalls of special verdicts. ‘[T]he possibility of a defective or
incomplete special verdict, or possibly no verdict at all, is much greater than
with a general verdict that is tested by special findings . . . .’ ” ’ ” (Trujillo,
supra, at p. 285.) In other words, this court cannot imply factual findings
when a special verdict form is used. (Saxena v. Goffney (2008) 159
Cal. App. 4th 316, 324-329 [“A special verdict form is ‘fatally defective’ if it
does not allow the jury to resolve every controverted issue.”].) Because the
conduct set forth by Clear9 on appeal was not put before the jury, this court
cannot infer the jury’s findings in Clear9’s favor.
Even if such factual findings could be inferred, the additional conduct
that Clear9 alleges could support the claims suffers from the same defect as
the conduct stated in the special verdict forms—i.e., it consists of additional
breaches of the Distribution Agreement by Huawei. Specifically, Clear9
argues Huawei “actively interfered in Clear9’s contract with Leaco;” that
Huawei was “inducing Clear9 to solicit business from Tier 3 carriers (such as
Leaco, Flat Wireless, and United Wireless) . . . then selling or attempting
Huawei equipment to sell to those customers [sic];” “actively encouraging
19
Leaco to not purchase extended support from Clear9 and then selling or
attempting to sell its products to Leaco to be paid for with funds which would
have otherwise been paid to Clear9;” “refusing to provide support for
Leaco…;” “excluding Leaco from its user group for Huawei products;” and
that Huawei “put Clear9 in a false light with its customers” and “destroyed
the hosted wireless network solution devised by Eric Steinmann and Clear9.”
This conduct all falls within the purview of the contract between the
parties and was alleged as breaches of the Distribution Agreement by Clear9.
The operative complaint’s claim for breach of contract alleges Huawei
breached the Distribution Agreement by: (1) circumventing Clear9 to sell
directly to Flat and Leaco; (2) providing equipment that did not function or
that did not conform to customer’s requirements; (3) failing to provide
support services; (4) falsely claiming the agreement was expired; (4) refusing
to comply with the agreement’s dispute resolution provision; (5) and
generally acting in bad faith. The conduct outlined in Clear9’s appellate
briefing all falls within Clear9’s pleading of its breach of contract claim.
Thus, it cannot be wrongful for purposes of Clear9’s claims for interference
with prospective economic relations.8
II
Special Damages
Clear9 next argues it “was not permitted to recover its damages
because the [trial] court improperly granted Huawei’s motion in limine to
preclude Clear9 from presenting evidence of its damages, and then it
8 Clear9’s argument that “[t]here was substantial evidence of future economic
benefit between Clear9, on the one hand, and Flat and Leaco, on the other” and its
assertion that the trial court erred by granting Huawei’s motion for a new trial in the
alternative are moot in light of our affirmance of the JNOV order.
20
improperly limited the damages Clear9 could recover in its ruling on the
motion for JNOV.”
A
As an initial matter, the record shows that the trial court did not grant
Huawei’s motion in limine with respect to special damages, and that Clear9
agreed punitive damages should be bifurcated from liability.9 Rather, the
court ruled that all compensatory damage evidence was permissible, subject
to later objection by counsel. Clear9 also provides no explanation of any
evidence it was prevented from introducing at trial nor does it cite a single
instance of the trial court precluding damage evidence. We deem this portion
of the argument waived. (See Duarte v. Chino Community Hospital (1999) 72
Cal. App. 4th 849, 856 (Duarte) [“It is the duty of a party to support the
arguments in its briefs by appropriate reference to the record, which includes
providing exact page citations. [Citations.] If a party fails to support an
argument with the necessary citations to the record, that portion of the brief
may be stricken and the argument deemed to have been waived.”].)
With respect to the portions of the JNOV ruling concerning damages,
Clear9 appears to argue (1) the limitation of liability provision contained in
the Distribution Agreement applies only to damages from purchases of
defective equipment; (2) the provision is unenforceable because it fails of its
essential purpose; and (3) that the provision does not apply to sales outside of
the Distribution Agreement.
In its order granting JNOV, the court found that the contract damages
award of $88,000 equated to the bond payment made by Clear9 as required
9 None of the special verdict forms for Clear9’s five tort claims asked the jury to
determine if Huawei was guilty of malice, oppression or fraud in accordance with Civil
Code section 3294, and Clear9 never raised the issue of punitive damages after the parties
agreed to bifurcate.
21
by its separate agreement with Leaco, and that the bond payment was
special, not general, contract damages. The court then found the award was
excluded by the Distribution Agreement’s limitation of liability provision,
which explicitly disallowed special damages. In accepting Huawei’s position
that the bond payments constituted special damages, the court stated “if
there was evidence indicating the bond-issue was contemplated by the parties
before or at the time of contracting, it was not cited to by Clear9.
Furthermore, no argument is made nor is any evidence cited indicating that
such damages were reasonably foreseeable.”
Because we affirm the trial court’s JNOV order with respect to Clear9’s
four claims for interference with prospective economic relations, Clear9’s
arguments concerning the damages for these claims are moot. Additionally,
the trial court ruled the limitation of liability contained in the Distribution
Agreement was inapplicable to Clear9’s claim for tortious interference with
contract, a ruling we affirm in Section V of this opinion, so Clear9’s
arguments are also inapplicable to this claim. Thus, this challenge relates
only to the $88,000 awarded for Huawei’s breach of the Distribution
Agreement.
B
“Generally, ‘a limitation of liability clause is intended to protect the
wrongdoer defendant from unlimited liability.’ (1 Witkin, Summary of Cal.
Law (10th ed. 2005) Contracts, § 503, pp. 552-554.) Clauses of this type ‘have
long been recognized as valid in California.’ [Citation.] With respect to
claims for breach of contract, limitation of liability clauses are enforceable
unless they are unconscionable, that is, the improper result of unequal
bargaining power or contrary to public policy.” (Food Safety Net Services v.
Eco Safe Systems USA, Inc. (2012) 209 Cal. App. 4th 1118, 1126.) “Whether
22
an exculpatory clause ‘covers a given case turns primarily on contractual
interpretation, and it is the intent of the parties as expressed in the
agreement that should control. When the parties knowingly bargain for the
protection at issue, the protection should be afforded. This requires an
inquiry into the circumstances of the damage or injury and the language of
the contract; of necessity, each case will turn on its own facts.’ ” (Burnett v.
Chimney Sweep (2004) 123 Cal. App. 4th 1057, 1066.)
The Distribution Agreement’s main limitation of liability is found in
section 10 of the contract. The provision’s first subsection, “A,” states:
“No Other Damages. IN NO EVENT WILL COMPANY BE
LIABLE FOR ANY REASON WHATSOEVER TO
DISTRIBUTOR OR ANY THIRD PARTY FOR LOST PROFITS,
DIMINUATION OF GOOD WILL, OR ANY OTHER INDIRECT,
INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR OTHER
SPECIAL DAMAGES SUFFERED BY DISTRIBUTOR, ITS
CUSTOMERS OR OTHERS ARISING OUT OF OR RELATED
TO THIS AGREEMENT OR THE PRODUCTS, REGARDLESS
OF THE CAUSE OF ACTION (WHETHER IN TORT,
CONTRACT, NEGLIGENCE, STRICT LIABILITY, BREACH OF
WARRANTY OR OTHERWISE), EVEN IF COMPANY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.”
Clear9 also points to another provision of the Distribution Agreement,
section 8 titled “Product Warranty Matters.” This provision contains a
subsection titled “No Damages” that states Huawei’s liability and
responsibility to Clear9
“for any allegedly defective Product or part shall be limited to
repair or replacement of the Product or part, at [Huawei’s]
23
option. COMPANY’S LIABILITY, IF ANY, FOR DAMAGES
RELATING TO DEFECTIVE PRODUCTS OR PARTS SHALL
NOT EXCEED DISTRIBUTOR’S PURCHASE PRICE FOR THE
PRODUCTS OR PARTS IN QUESTION.”
Relying on two unpublished federal district court opinions, Spy Phone
Labs, LLC v. Google Inc. (C.D. Cal. Oct. 14, 2016, Case No. 2016-cv-03756-
KAW) 2016 U.S. Dist. LEXIS 143530 (Spy Phone) and Darnaa, LLC v. Google
Inc. (C.D. Cal. Dec. 2, 2015, Case No. 2015-cv-03221-RMW) 2015 U.S. Dist.
LEXIS 161791 (Darnaa), Clear9 argues that section 10 is wholly invalid
because it applies to intentional conduct. This argument is unavailing. Even
if these cases were authoritative, which they are not, both concern an
evaluation of the unconscionability of liability limitations and the application
of Civil Code section 166810 (which precludes limitations on liability for
intentional wrongs) as it related to the plaintiffs’ tortious interference with
prospective economic advantage claims. (Spy Phone, supra, 2016 U.S. Dist.
143530, pp. *33-*36; Darnaa, 2015 U.S. Dist. LEXIS 161791, pp. *13-*16.)
These cases do not hold that limitations of liability are invalid as applied to
breach claims, as Clear9 argues, and Clear9 makes no assertion that the
Distribution Agreement or its limitation of liability provisions are
unconscionable.
Clear9 next asserts that the limitation of liability contained in section
10 must be read together with section 8, and that together these provisions
make clear that the contract’s limitation of liability “is only concerned with
purchases of equipment” and “not to other breaches of the Agreement which
might arise, such as circumventing the right of Clear9 to sell to certain
10 Subsequent undesignated statutory references are to the Civil Code.
24
customers.” Clear9 in essence argues that the narrower provision governing
product warranty found in section 8 of the Distribution Agreement should be
applied to eliminate the broader limitation of liability provision contained in
section 10. As the trial court did, we reject this illogical interpretation of the
contract. (See County of Marin v. Assessment Appeals Bd. (1976) 64
Cal. App. 3d 319, 325 [the court shall avoid an interpretation which will make
a contract extraordinary, harsh, unjust, inequitable or which would result in
absurdity].) The limitation in section 8 applies to defective products but does
not limit the broader protection afforded Huawei under section 10.11
As noted, the trial court found that section 10’s limitation of special
damages precluded recovery of the bond payment amount awarded by the
jury. “[D]amages must be ‘foreseeable’ to be recoverable for breach of
contract. The seminal case announcing this doctrine, still generally accepted
as a limitation on damages recoverable for breach of contract, is Hadley v.
Baxendale (1854) 156 Eng.Rep. 145. First, general damages are ordinarily
confined to those which would naturally arise from the breach, or which
might have been reasonably contemplated or foreseen by both parties, at the
time they made the contract, as the probable result of the breach. Second, if
special circumstances caused some unusual injury, special damages are not
recoverable therefor unless the circumstances were known or should have
been known to the breaching party at the time he entered into the contract.
The requirement of knowledge or notice as a prerequisite to the recovery of
11 Without citation to legal authority, Clear9 also argues that because the only
remedy afforded by the Distribution Agreement is repair and replace as set forth in
section 8, the limitation of liability provision fails of its essential purpose and cannot be
enforced. Because we reject the interpretation of these two contract provisions, this
argument does not merit attention. We also decline to address Clear9’s assertion that the
limitation of liability provision does not apply to sales outside the Distribution
Agreement, since that argument has no connection to the bond payment damages at issue.
25
special damages is based on the theory that a party does not and cannot
assume limitless responsibility for all consequences of a breach, and that at
the time of contracting he must be advised of the facts concerning special
harm which might result therefrom, in order that he may determine whether
or not to accept the risk of contracting. (1 Witkin, Summary of Cal. Law,
supra, Contracts, § 815, p. 733.)” (Brandon & Tibbs v. George Kevorkian
Accountancy Corp. (1990) 226 Cal. App. 3d 442, 454-456.)
Clear9 provides no argument concerning whether the bond payments
were contemplated by the parties and, therefore, were improperly
characterized as special damages. Thus, we have no basis to upset the court’s
ruling on this ground. Accordingly, we reject Clear9’s challenge to the trial
court’s decision to grant Huawei’s motion for JNOV as to the damages
awarded for breach of the Distribution Agreement.
III
Clear9’s Motion to Amend Its Complaint During Trial
A
Clear9 next argues that the trial court abused its discretion by denying
a mid-trial motion to add a claim for breach of contract related to sales made
to Leaco outside the Distribution Agreement. Clear9 provides no citation to
the record to support this contention, and denial on this basis would be
appropriate. (See Duarte, supra, 72 Cal.App.4th at p. 856 [“It is the duty of a
party to support the arguments in its briefs by appropriate reference to the
record, which includes providing exact page citations.”].) Affirmance on the
merits is also appropriate here. During the presentation of evidence, after
the testimony of Chua, Clear9 moved to amend its pleadings to add another
claim for breach of contract.
26
The court asked Clear9 to brief the motion, and shortly before the case
was submitted to the jury, Clear9 filed its papers. Clear9 argued that Chua
had testified, for the first time, that the Distribution Agreement did not cover
the sale of all of the equipment at issue. Clear9’s motion argued that this
testimony showed that Huawei had breached “an agreement separate and
apart from the Distribution Agreement” and it asked the court to “allow
Clear9 to pursue its claim for damages based on the sale of the equipment not
covered by the Distribution Agreement.”
At a conference the next day, Huawei argued the proposed amendment
was not warranted because Clear9 was not changing its theory of liability,
rather it was attempting to avoid the limitation of liability provision in the
Distribution Agreement. Clear9’s counsel responded that an amendment was
necessary in case the jury found that the Distribution Agreement did not
cover the faulty equipment Clear9 claimed caused its damage. The court
denied the motion, noting that because Clear9’s theory throughout the
litigation was that all of the sales were encompassed by the Distribution
Agreement an amendment was unnecessary.
B
“ ‘[Code of Civil Procedure section] 469 specifically governs motions to
amend at trial to conform to proof . . . . [It] provides in relevant part as
follows: “No variance between the allegation in a pleading and the proof is to
be deemed material, unless it has actually misled the adverse party to his
prejudice in maintaining his action or defense upon the merits.” Such
amendments at trial to conform to proof, “if not prejudicial, are favored since
their purpose is to do justice and avoid further useless litigation.” . . .’ ”
“ ‘ . . . “[T]he allowance of amendments to conform to the proof rests largely
in the discretion of the trial court and its determination will not be disturbed
27
on appeal unless it clearly appears that such discretion has been
abused . . . .” ’ ” (Duchrow v. Forrest (2013) 215 Cal. App. 4th 1359, 1378.)
“ ‘ “Such amendments have been allowed with great liberality “and no
abuse of discretion is shown unless by permitting the amendment new and
substantially different issues are introduced in the case or the rights of the
adverse party prejudiced . . . .” . . .’ Conversely, ‘ “amendments of pleadings to
conform to the proofs should not be allowed when they raise new issues not
included in the original pleadings and upon which the adverse party had no
opportunity to defend . . . .” ’ ” (Duchrow v. Forrest, supra, 215 Cal.App.4th at
p. 1378.) “As stated by a leading treatise, in ruling on a motion to amend a
complaint to conform to proof, ‘the court is usually guided by whether:
[¶] . . . there is a reasonable excuse for the delay; [¶] . . . the change relates
to the facts or only to legal theories; and [¶] . . . the opposing party will be
prejudiced by the amendment.’ (Wegner et al., Cal. Practice Guide: Civil
Trials and Evidence (The Rutter Group 2012) ¶ 12:393, p. 12-79, original
italics.)” (Duchrow, supra, at pp. 1378-1379.)
C
We reject Clear9’s claim that the trial court’s denial of its motion to
amend its complaint to conform to Chua’s testimony was an abuse of
discretion. Clear9 wanted to add a new breach of contract claim near the
close of trial based solely on Chua’s answer “no” to the question of whether
“the sale to Clear9 for the Leaco network of the PDNS and the media
gateway was covered by the distributor agreement.” Clear9 offered no
explanation for its delay in pursuing this alternative theory of liability (i.e.,
that it purchased equipment from Huawei under a separate agreement), and
it concedes that had the court allowed an amendment, it would have required
additional evidence and, presumably, investigation into the issue by both
28
parties. The trial court’s refusal to allow this last-minute change in strategy
was not an abuse of the court’s wide discretion.
IV
Motion for Prejudgment Interest
Finally, Clear9 argues it was entitled to receive an award of
prejudgment interest under section 3287, subdivision (a). We disagree. If the
requirements of section 3287 are met, an award of prejudgment interest is
mandatory. (North Oakland Medical Clinic v. Rogers (1998) 65 Cal. App. 4th
824, 828-829.) “The denial of prejudgment interest under section 3287,
subdivision (a) presents a question of law we must review on an independent
basis.” (Employers Mutual Casualty Co. v. Philadelphia Indemnity Ins. Co.
(2008) 169 Cal. App. 4th 340, 347.)
Section 3287, subdivision (a), provides in part: “A person who is
entitled to recover damages certain, or capable of being made certain by
calculation, and the right to recover which is vested in the person upon a
particular day, is entitled also to recover interest thereon from that day,
except when the debtor is prevented by law, or by the act of the creditor from
paying the debt.” Damages are deemed certain when, though the parties
dispute liability, they essentially do not dispute the computation of damages,
if any. (Wisper Corp. v. California Commerce Bank (1996) 49 Cal. App. 4th
948, 958.) “ ‘[T]he certainty requirement of section 3287, subdivision (a) has
been reduced to two tests: (1) whether the debtor knows the amount owed or
(2) whether the debtor would be able to compute damages.’ [Citation.]”
(Polster, Inc. v. Swing (1985) 164 Cal. App. 3d 427, 434-435.) “The statute
does not authorize prejudgment interest where the amount of damage, as
opposed to the determination of liability, ‘depends upon a judicial
determination based upon conflicting evidence and is not ascertainable from
29
truthful data supplied by the claimant to his debtor.’ [Citations.]” (Fireman’s
Fund Ins. Co. v. Allstate Ins. Co. (1991) 234 Cal. App. 3d 1154, 1173.)
Here, there is no question that the parties disputed the computation of
damages. Indeed, as the trial court noted, Clear9’s motion in the trial court
provided no evidence to support its claim that Huawei had knowledge before
trial of the requisite facts to discern the amount of damages claimed by
Clear9. As Huawei points out, neither Clear9’s complaint nor its answer to
pointed interrogatory requests for this information identified the amount of
damages Clear9 sought by this litigation. The trial court’s conclusion that an
award of prejudgment interest was not appropriate was not error.
V
Interference with Clear9’s Contractual Relations with Leaco
In its cross-appeal, Huawei asserts that the damages awarded for its
tortious interference with Clear9’s contract with Leaco are precluded by the
limitation of liability provision in the Distribution Agreement. With respect
to this claim, the jury awarded $302,890, which was the amount that Clear9
gave in discounts to Leaco related to the ongoing failure of Huawei’s
equipment.
A
The elements of the “cause of action for intentional interference with
contractual relations are (1) a valid contract between plaintiff and a third
party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional
acts designed to induce a breach or disruption of the contractual relationship;
(4) actual breach or disruption of the contractual relationship; and (5)
resulting damage.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19
Cal. 4th 26, 55.) “Because interference with an existing contract receives
greater solicitude than does interference with prospective economic
30
advantage [citation], it is not necessary that the defendant’s conduct be
wrongful apart from the interference with the contract itself.” (Ibid.; Ixchel,
supra, 2020 WL 4432623, at *5.)
As the Supreme Court “explained in [Della Penna], supra, 11 Cal.4th at
page 392, it is necessary to distinguish the tort of interference with an
existing contract [from the tort of interference with a prospective economic
advantage] because the exchange of promises which cements an economic
relationship as a contract is worthy of protection from a stranger to the
contract. Intentionally inducing or causing a breach of an existing contract is
therefore a wrong in and of itself. Because this formal economic relationship
does not exist and damages are speculative when remedies are sought for
interference in what is only prospective economic advantage, Della Penna
concluded that some wrongfulness apart from the impact of the defendant’s
conduct on that prospect should be required. Implicit in the Della Penna
holding is a conclusion that this additional aspect of wrongfulness is not an
element of the tort of intentional interference with an existing contract.”
(Quelimane Co. v. Stewart Title Guaranty Co., supra, 19 Cal.4th at pp. 55-56;
see also Ixchel, supra, 2020 WL 4432623, at *4 [“ ‘courts provide a damage
remedy against third party conduct intended to disrupt an existing contract
precisely because the exchange of promises resulting in such a formally
cemented economic relationship is deemed worthy of protection from
interference by a stranger to the agreement’ ”].)
B
Huawei argues that the limitation of liability found in the Distribution
Agreement precluded the damages awarded by the jury for Clear9’s claim of
interference with its separate contractual relationship with Leaco. The trial
court rejected this argument, concluding that because Huawei’s conduct was
31
intentional, public policy precluded the enforcement of the limitation of
liability provision in the Distribution Agreement. The court’s order also
stated that Huawei’s argument improperly “assumes that the interference
‘arises’ from a breach of the [Distribution Agreement],” not Clear9’s contract
with Leaco.
It is Huawei’s burden on appeal to show that this claim should be
precluded by the Distribution Agreement. (See, e.g., In re Marriage of
McLaughlin (2000) 82 Cal. App. 4th 327, 337 [“ ‘The burden is on the appellant
in every case to show that the claimed error is prejudicial; i.e., that it has
resulted in a miscarriage of justice.’ ”].) Huawei, however, provides no
explanation to tether the intentional interference with contract claim to the
Distribution Agreement and fails to sufficiently explain why the trial court’s
ruling that public policy prevented the application of the liability limitation
to the claim was error. Huawei concedes that “California public policy
precludes parties from limiting liability for intentional conduct,” but asserts
only that this rule does not apply because Clear9’s interference with
contractual relations claim, like the interference with prospective economic
advantage claims, is based on a breach of the Distribution Agreement.
The law that applies to intentional interference with contractual
relations, however, is different in a critical way. As the trial court stated,
“[b]ecause interference with an existing contract receives greater solicitude
than does interference with prospective economic advantage [citation], it is
not necessary that the defendant’s conduct be wrongful apart from the
interference with the contract itself.” (Quelimane Co. v. Stewart Title
Guaranty Co., supra, 19 Cal.4th at p. 55.) The same reasoning supports the
trial court’s conclusion that the fact the conduct also breached the
Distribution Agreement does not preclude Huawei’s liability for interfering
32
with Clear9’s contract with Leaco. Unlike a claim for interference with a
prospective economic relationship, “courts provide a damage remedy against
third party conduct intended to disrupt an existing contract precisely because
the exchange of promises resulting in such a formally cemented economic
relationship is deemed worthy of protection from interference by a stranger to
the agreement.” (Della Penna, supra, 11 Cal.4th at p. 392, italics added.) On
the other hand, “[e]conomic relationships short of contractual . . . stand on a
different legal footing as far as the potential for tort liability is reckoned.
Because ours is a culture firmly wedded to the social rewards of commercial
contests, the law usually takes care to draw lines of legal liability in a way
that maximizes areas of competition free of legal penalties.” (Ibid; see Ixchel,
supra, 2020 WL 4432623, at *4.)
Unlike interference with a prospective economic relationship, the
economic rationale of free competition does not preclude liability where a
contracting party intentionally interferes with its contracting partner’s other
existing contracts. Clear9’s contract with Leaco is worthy of protection from
tortious interference, regardless of whether the interference also amounts to
the breach of the Distribution Agreement. As the trial court found, this
intentional tortious conduct is not subject to the Distribution Agreement’s
limitation of liability provision. (See § 1668 [“All contracts which have for
their object, directly or indirectly, to exempt anyone from responsibility for
his own fraud, or willful injury to the person or property of another, or
violation of law, whether willful or negligent, are against the policy of the
law”]; Capri v. L.A. Fitness International, LLC (2006) 136 Cal. App. 4th 1078,
1084 [“ ‘It is now settled . . . under section 1668, “a party [cannot] contract
away liability for his fraudulent or intentional acts or for his negligent
violations of statutory law,” regardless of whether the public interest is
33
affected.’ ”].) For these reasons, we reject Huawei’s argument and affirm the
trial court’s order denying Huawei’s motions for JNOV and new trial of
Clear9’s claim for intentional interference with its contract with Leaco.
DISPOSITION
The order is affirmed. The parties are to bear their own costs of appeal.
HALLER, Acting P. J.
WE CONCUR:
IRION, J.
GUERRERO, J.
34