952 F.3d 1122
9th Cir.2020Background
- Ronald Barranco sold two separate assets to 3D Systems: (1) two websites (the "Domains") via a Purchase and Sale Agreement (PSA) that provided a $250,000 buyout, royalties, and a buyout-right based on average royalties; and (2) Print3D technology under a separate contract that included earn-outs and a management role for Barranco.
- The PSA contained a covenant not to compete (CNTC) that promised injunctive relief and an "equitable accounting of earnings, profits and other benefits" for any violation, plus a cumulative-rights clause.
- Barranco alleged 3D Systems breached the PSA by failing to invest in the Domains (preventing anticipated royalty income); Reichental’s negotiation notes referenced a $5 million total figure that Barranco claimed showed expectation damages.
- Separately, an arbitrator awarded Barranco relief on his Print3D claims, finding 3D Systems had blocked his earn-outs.
- At trial the district court excluded the Print3D arbitration award and Reichental’s $5 million notes; a jury found 3D Systems did not breach the PSA but that Barranco breached the CNTC.
- The district court then conducted a bench equitable accounting and ordered Barranco to disgorge more than $500,000; on appeal the Ninth Circuit affirmed the evidentiary rulings but reversed and vacated the monetary judgment, finding error in the exercise of equity jurisdiction.
Issues
| Issue | Barranco's Argument | 3D Systems' Argument | Held |
|---|---|---|---|
| Admissibility of Print3D arbitration award | The arbitrator’s findings about 3D Systems’ conduct are probative of similar conduct as to the Domains and thus admissible | The arbitration involved different contract/asset and would be prejudicial/confusing | Exclusion affirmed: arbitration was not sufficiently probative and risked undue prejudice/ juror deference |
| Admissibility of Reichental’s $5M negotiation notes/testimony | The $5M figure shows expectation damages and supports that 3D Systems promised to invest in the Domains | Notes are prejudicial, speculative, and the probative value is outweighed under Rule 403 | Exclusion affirmed as to damages; any error harmless because jury found no breach by 3D Systems |
| Whether equitable accounting/disgorgement was proper remedy for CNTC breach | 3D Systems contends PSA’s CNTC and cumulative-rights clause permit equitable accounting/disgorgement | Barranco contends legal remedies were adequate and jury should have decided damages | Reversed: district court abused discretion — equitable restitution was improper because legal remedies existed and complexity exception was not shown |
| Whether contractual language alone can compel equitable relief | Barranco: contractual remedy language cannot alone displace jury or create equitable relief | 3D Systems: PSA language (irreparable harm/equitable accounting) supports equitable relief | Reversed: contractual clauses alone do not entitle party to equitable remedies; court may not rely solely on contract text to grant equity |
Key Cases Cited
- Graef v. Chemical Leaman Corp., 106 F.3d 112 (5th Cir. 1997) (arbitration findings admissible when they directly address same issue in subsequent litigation)
- Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974) (trial courts may admit arbitration awards under appropriate circumstances and assign weight)
- United States v. Sine, 493 F.3d 1021 (9th Cir. 2007) (judicial findings can unfairly prejudice juries who defer to prior factfinders)
- Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962) (equitable remedies require absence of adequate legal remedy; complexity exception is rare)
- Dominion Video Satellite, Inc. v. Echostar Satellite Corp., 356 F.3d 1256 (10th Cir. 2004) (contractual statements about irreparable harm are insufficient alone to justify equitable relief)
- Smith, Bucklin & Assocs., Inc. v. Sonntag, 83 F.3d 476 (D.C. Cir. 1996) (contract clause declaring irreparable harm and injunctive relief is not dispositive for equity)
- Baker’s Aid v. Hussmann Foodservice Co., 830 F.2d 13 (2d Cir. 1987) (contractual language does not control the appropriateness of injunctive relief)
- Boyd v. City & County of San Francisco, 576 F.3d 938 (9th Cir. 2009) (appellate standard on prejudicial evidentiary error presumes prejudice unless error likely did not affect verdict)
- Wagner v. County of Maricopa, 747 F.3d 1048 (9th Cir. 2013) (abuse-of-discretion standard for evidentiary rulings)