Zalkind v. Ceradyne, Inc.
194 Cal. App. 4th 1010
Cal. Ct. App.2011Background
- Ceradyne purchased Quest’s assets for $2.44 million, $300,000 cash and $2.14 million in Ceradyne stock.
- Section 8.10 required Ceradyne to use best efforts to register the stock with the SEC; deadline extended multiple times.
- Section 14 indemnified against damages from Ceradyne’s breach; Section 14.3 defined damages broadly; 14.4 limited claims to 24 months.
- Zalkinds/Quest sued Ceradyne for breach of 8.10; Ceradyne counterclaimed for securities fraud under Corporations Code §25401.
- Trial court granted summary judgment to both sides; issue on timeliness and damages; appellate court affirmed.
- Damages under §25501 depend on ‘the complaint’; cross-complaint timing and status affect calculation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does indemnity include direct contract claims? | Zalkinds/Quest: indemnity covers only third-party claims. | Ceradyne: indemnity broadly includes direct claims arising from breach. | Indemnity includes direct contract claims. |
| Is the 24-month limit in §14.4 applicable to direct claims? | If indemnity includes direct claims, §14.4 applies. | Time bar may apply even to direct claims under broad §14. | Yes, the 24-month limit applies to direct claims. |
| What does 'the complaint' mean in §25501 damages? | Value based on buyer’s complaint; seller’s cross-complaint not included. | Value based on seller’s cross-complaint asserting §25401 violations. | ‘The complaint’ includes the seller’s cross-complaint for damages. |
| Can Ceradyne obtain rescission under §25501 when consideration cannot be restored? | Rescission may be available with equitable adjustment. | Rescission unavailable because consideration cannot be restored and equities cannot be adjusted. | Rescission is unavailable; only damages limited by §25501. |
Key Cases Cited
- Rossmoor Sanitation, Inc. v. Pylon, Inc., 13 Cal.3d 622 (Cal. 1975) (indemnity broadness; definition of indemnity)
- Myers Building Industries, Ltd. v. Interface Technology, Inc., 13 Cal.App.4th 949 (Cal. App. 1993) (indemnity generally relates to third party claims)
- Wilshire-Doheny Associates, Ltd. v. Shapiro, 83 Cal.App.4th 1380 (Cal. App. 2000) (indemnity scope; whether indemnity applies to non-third-party claims)
- Dream Theater, Inc. v. Dream Theater, 124 Cal.App.4th 547 (Cal. App. 2004) (indemnity may cover direct as well as third-party claims)
- Atari Corp. v. Ernst & Whinney, 981 F.2d 1025 (9th Cir. 1992) (indemnity may extend beyond third-party claims)
- Beeson v. Schloss, 183 Cal. 618 (Cal. 1920) (public policy on contract limitations)