Mike Murphy's Enterprises v. Fineline Industries CA5
F080048
| Cal. Ct. App. | Apr 13, 2022Background
- Murphy owned patents/trademark for Pure Vert (QuickFill) wake-control technology and licensed Fineline in a 2010 10‑year license with Deal Terms and Standard Terms imposing monthly royalty reports, a base royalty per boat, and a minimum annual royalty.
- Fineline historically used RamFill; around 2013 manufacturing changes led some boats to include QuickFill but reportedly were not properly documented for royalties; Fineline later discovered underpayments and sought to remedy them.
- Parties disputed royalty accounting, an attempted 2016 settlement/accord, and the scope of boats subject to royalties (QuickFill "QF" vs RamFill "RF"). An audit access dispute followed; Murphy terminated the license and sued for breach and related claims.
- The trial court excluded expert infringement evidence under Gunn v. Minton, concluding state court could not resolve disputed patent‑infringement issues bearing on whether RF boats fell within the licensed technology.
- At trial the court found a breach for underpaid royalties on QF boats, adopted Fineline’s damages expert calculations (with minor adjustments), awarded $62,936.01, denied other claims, and reserved fees; Murphy appealed chiefly challenging evidentiary findings, contract interpretation, and prejudgment interest.
- The Court of Appeal affirmed the judgment in all respects except reversed and remanded for recalculation of prejudgment interest because the record did not support the trial court’s interest computation.
Issues
| Issue | Plaintiff's Argument (Murphy) | Defendant's Argument (Fineline) | Held |
|---|---|---|---|
| Sufficiency of evidence for royalties paid / number of boats | Trial record doesn’t support court’s count/payments; exhibit totals conflict with award | Wittwer’s testimony and documentary review accurately supported counts; Murphy didn’t cross‑examine on discrepancies | Substantial evidence supports trial court crediting Fineline’s expert; no reversible error on totals |
| Contract interest rate and calculation period | Agreement should yield 2%/month (24%) unless usurious; trial understated interest period | Contract provides lesser of 2%/month or highest legal contract rate; highest legal rate is 10% p.a.; record supports cutoff based on events | Court correctly applied 10% p.a. (highest legal contract rate); but trial court’s prejudgment interest calculation lacked evidentiary basis — remand to recalc |
| Timing of royalty obligation and $50 late charge (manufactured vs sold; per‑boat vs per‑period) | Royalties due on manufacture; $50 charge per Boat; course of conduct irrelevant | Agreement ambiguous; parties’ course of conduct (reports/forms/payments) shows royalties due on sale and $50 is per royalty period | Court reasonably resolved ambiguities by admitting extrinsic course‑of‑conduct evidence: royalties due on sale; $50 late charge per monthly royalty payment |
| Exclusion of patent infringement evidence and scope of recoverable boats (QF v. RF) | Exclusion prevented proof that RF boats infringed and should be royalty‑bearing; trial deprived Murphy of damages | Assertion that proving RF boats are royalty‑bearing requires patent‑law questions; Gunn precludes state resolution of substantial patent questions | Exclusion proper under Gunn; trial court permissibly limited breach recovery to QF boats and left infringement issues to federal court |
Key Cases Cited
- Gunn v. Minton, 568 U.S. 251 (2013) (state courts cannot adjudicate claims that necessarily raise substantial, disputed patent questions preempted by federal jurisdiction)
- Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (1988) (well‑pleaded complaint rule and when federal patent law creates exclusive federal jurisdiction)
- Applera Corp. v. MP Biomedicals, LLC, 173 Cal.App.4th 769 (2009) (state breach claims that rest on admitted royalty obligations may avoid federal preemption)
- Scherbatskoy v. Halliburton Co., 125 F.3d 288 (5th Cir. 1997) (breach claims requiring infringement determinations are federal questions)
- U.S. Valves, Inc. v. Dray, 190 F.3d 811 (7th Cir. 1999) (royalty determinations that require patent‑law analysis implicate federal jurisdiction)
- Plastic Pipe & Fittings Assn. v. California Building Standards Com., 124 Cal.App.4th 1390 (2004) (uncorroborated testimony can constitute substantial evidence unless inherently unreliable)
- Kuhn v. Department of General Services, 22 Cal.App.4th 1627 (1994) (summary of substantial‑evidence standard of review)
- County of Alameda v. Carleson, 5 Cal.3d 730 (1971) (Code Civ. Proc. § 663 governs relief where trial judge draws incorrect legal conclusions)