71 Cal.App.5th 958
Cal. Ct. App.2021Background
- Shi was Elation’s software developer (2005–2011) and signed a 2005 NDA that prohibited use/disclosure of Elation confidential information and preserved a right to seek injunctive relief; the NDA contained no fee-shifting clause.
- In 2011 Elation sued Shi/Efen Bridge; the parties executed a Settlement Agreement with a three-step inspection regime for Efen’s LCP, required destruction of original code, and attached a Stipulated Injunction (which included an attorneys’ fees provision) to be entered upon default.
- Elation later alleged Shi/Fenn Bridge used Elation’s code; during the second suit Elation lost the USB containing the archived original LCP (admitted at trial) and alleged defendants breached both the NDA and the Settlement Agreement.
- At trial the jury found Shi breached the NDA and awarded $10,000; it found defendants breached the Settlement Agreement but that Elation suffered no harm; Elation conceded liability on the cross-claim and stipulated to $10,000 liquidated damages.
- The trial court granted JNOV: it vacated the NDA damages for lack of evidence of lost profits and granted JNOV on the Settlement Agreement cause because Elation’s loss of the USB was a material breach making the inspection regime impossible; the court awarded defendants $700,000 in fees under Civ. Code § 1717 and the Stipulated Injunction.
- On appeal the court reversed the JNOV as to the NDA (holding nominal damages should be entered for the unchallenged breach finding), affirmed JNOV as to the Settlement Agreement, vacated the fee award and remanded for reconsideration of injunctive relief and fee apportionment.
Issues
| Issue | Elation's Argument | Defendants' Argument | Held |
|---|---|---|---|
| 1) Was JNOV proper as to the NDA damages and is Elation entitled to nominal damages? | Elation argued substantial evidence supported lost-profits damages (Richmond contract) and, alternatively, that the unchallenged breach entitles it to nominal damages. | Defendants argued there was no substantial evidence that Shi’s breach caused lost profits and they moved for JNOV on harm/damages. | Trial court correctly removed the $10,000 lost-profits award for lack of evidence, but appellate court held nominal damages must be entered on the unchallenged finding of breach. |
| 2) Was JNOV proper as to the Settlement Agreement claim? | Elation contended substantial evidence supported liability under several theories (failure to delete code or to submit to third inspection) and that the lost USB was not material to those breaches. | Defendants argued Elation’s loss of the archived USB was a material breach that defeated the Settlement Agreement’s inspection mechanism, so JNOV was proper. | Court affirmed JNOV: Elation’s admitted loss of the USB was a material breach that made the contract’s inspection-based enforcement regime impossible. |
| 3) Did Civ. Code § 1717 apply so defendants could recover fees under the Stipulated Injunction? | Elation argued its claims (especially the NDA claim) were not "on" the fee-bearing contract and that the Stipulated Injunction should not be treated as part of the Settlement Agreement for § 1717. | Defendants argued the Stipulated Injunction was part of the Settlement Agreement and the Settlement claim was brought to obtain the injunction so § 1717 applies reciprocally. | Court held § 1717 applied to the Settlement Agreement claim because the Stipulated Injunction was part of the transaction and Elation sued to enforce/obtain that injunction; § 1717 did not apply to the NDA claim. |
| 4) Were the fee award and its scope proper without apportionment? | Elation urged fees should be limited/apportioned because § 1717 applies only to contract claims and the NDA claim lacks a fee clause. | Defendants treated themselves as prevailing parties on the contract dispute and sought full enforcement of the stipulated-fee clause. | Court vacated the fee judgment and remanded: § 1717 applies only to the Settlement Agreement claim(s), and the trial court must reconsider whether and how to apportion fees (and reconsider injunction request given the NDA nominal award). |
Key Cases Cited
- Sweet v. Johnson, 169 Cal.App.2d 630 (nominal damages recoverable for contractual breach)
- Mountain Air Enterprises, LLC v. Sundowner Towers, 3 Cal.5th 744 (contract documents made in one transaction may be construed together; scope of fee provisions)
- Hsu v. Abbara, 9 Cal.4th 863 (§ 1717 mutuality of remedy interpretation)
- Santisas v. Goodin, 17 Cal.4th 599 (apportionment: § 1717 applies only to contract claims)
- S.C. Anderson, Inc. v. Bank of America, 24 Cal.App.4th 529 (burden and proof requirements for lost profits damages)
- Grupe v. Glick, 26 Cal.2d 680 (anticipated profits standard for recovery)
- Staples v. Hoefke, 189 Cal.App.3d 1397 (reversible error where failure to award nominal damages affects rights)