Hydros Bottle LLC v. Stephen Gould Corporation
4:16-cv-04077
N.D. Cal.Aug 10, 2017Background
- Hydros Bottle LLC contracted SGC in Sept. 2015 to manufacture a proprietary glass bottle; Hydros prepaid a $329,180 purchase-order deposit and $97,824 tooling deposit (50% each), with choice-of-law in the Supply Agreement designating New York law.
- Hydros alleges SGC delayed and delivered defective samples, causing lost sales opportunities; Hydros sued for breach of contract and other claims in July 2016.
- SGC made multiple settlement offers; Hydros did not accept earlier offers. On March 17, 2017 SGC served a Rule 68 offer returning both deposits ($427,004 total), returning tooling, and promising attorneys’ fees, costs, and interest “as determined by the Court.” Hydros accepted March 30, 2017.
- Parties agreed prejudgment interest applies but disputed (1) which state’s rate governs (New York 9% v. California 10%), (2) when interest stopped accruing, and (3) the principal on which interest should be calculated (whether to include an additional $97,824 claimed tooling value).
- Court held the Rule 68 offer is a standalone contract made and accepted in California, applied California law (10% rate), found interest accrued from June 17, 2016 (breach notice) through March 17, 2017 (Rule 68 offer), and awarded interest on the $427,004 Rule 68 payment only (not on an additional alleged tooling value).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law / statutory rate for prejudgment interest | Hydros: Rule 68 agreement is separate, made/accepted in California, so California 10% rate applies | SGC: Supply Agreement’s New York choice-of-law governs, so New York 9% rate applies | Court: Rule 68 is a standalone contract made in California; apply California law and 10% rate |
| Terminal date for interest accrual | Hydros: interest runs until Rule 68 offer (Mar 17, 2017) | SGC: interest on purchase-order deposit stopped Sept 22, 2016 due to earlier unconditional offers; tooling at Mar 17, 2017 | Court: Interest accrued from June 17, 2016 to Mar 17, 2017; earlier partial offers did not stop accrual because they were for less than the final amount owed |
| Principal amount for interest calculation | Hydros: interest should include $427,004 plus an additional $97,824 (the remaining tooling value) | SGC: interest only on the deposits returned ($427,004); tooling has no ascertainable value | Court: Award interest only on the $427,004 Rule 68 payment; decline to award interest on alleged tooling value because it was uncertain, possibly valueless, and Hydros never lost use of that sum |
Key Cases Cited
- Schneider v. County of San Diego, 285 F.3d 784 (9th Cir. 2002) (prejudgment interest compensates for loss of use of money and typically accrues from claim accrual until judgment)
- In re Exxon Valdez, 484 F.3d 1098 (9th Cir. 2007) (prejudgment interest governed by state substantive law in diversity cases)
- Erie R. Co. v. Tompkins, 304 U.S. 64 (U.S. 1938) (federal courts apply state substantive law in diversity cases)
- Erdman v. Cochise County, 926 F.2d 877 (9th Cir. 1991) (Rule 68 settlement agreements analyzed as contracts)
- Nusom v. Comh Woodburn, Inc., 122 F.3d 830 (9th Cir. 1997) (Rule 68 offers interpreted under usual contract-construction rules)
- Lovetro v. Steers, 234 Cal. App. 2d 461 (Cal. Ct. App. 1965) (partial offers do not suspend interest; full amount required to stop accrual)
- Barnard v. Theobald, 721 F.3d 1069 (9th Cir. 2013) (prejudgment interest is compensatory, not punitive)
- Schiffner v. Pappas, 223 Cal. App. 2d 526 (Cal. Ct. App. 1963) (an offer with conditions is not a valid tender and does not stop interest accrual)