CIRCUITRONIX, LLC, Plаintiff-Appellee-Cross Appellant, versus KINWONG ELECTRONIC (HONG KONG) CO., LTD., SHENZEN KINWONG ELECTRONIC CO., LTD., Defendants-Appellants-Cross Appellees.
No. 19-12547
United States Court of Appeals for the Eleventh Circuit
April 8, 2021
D.C. Docket No. 1:17-cv-22462-UU
[PUBLISH]
Appeals from the United States District Court for the Southern District of Florida
Before WILLIAM PRYOR, Chief Judge, JILL PRYOR, Circuit Judge, and SELF,* District Judge.
These appeals raise a preliminary issue of civil procedure and three issues about the merits of a breach-of-contract action between a manufacturer and a distributor. A jury found that the manufacturer breached its duty to sell its products to certain сustomers exclusively through the distributor. The manufacturer appeals the denial of a directed verdict as to the status of two customers under the contract. The distributor cross-appeals a ruling that invalidated the contract‘s liquidated-damages clause and a ruling that prevented it from pursuing lost-profit damages. The parties dispute if we may consider the directed-verdict issue or if the manufacturer‘s post-trial motion was untimely. The motion was due on a day when the clerk‘s office was closed by court order, but the manufacturer could have filed it electronically. We conclude that, under
I. BACKGROUND
The Shenzhen Kinwong Electronic
To expand its reach, Kinwong in 2005 entered into a contract with Circuitronix, LLC, a Florida-based distributor that resells printed circuit boards. The contract gave Circuitronix the exclusive right to sell Kinwong‘s produсts to customers that Circuitronix recruited. It obligated Kinwong to fulfill orders that Circuitronix generated, and it specified the terms of those sales. It also barred Kinwong from doing business, directly or indirectly, with customers that Kinwong obtained through Circuitronix.
Circuitronix primarily obtained orders from electronic-manufacturing-services companies. Those companies incorporate printed circuit boards into products that they manufacture for other companies. For example, Circuitronix sold Kinwong‘s boards to the Kimball Electronics Corporation, and Kimball in turn used the boards to make products for its client companies.
In 2010, the parties modified their relationship through a settlement agreement.
The settlement agreement contained a “Covenant Not to Circumvent,” which codified the exclusivity requirement for companies listed on a Schedule A. Kinwong promised in the covenant that, for entities listed on Schedule A, it would not “directly or indirectly [negotiate or transact with] . . . any entity listed on Schedule A, except through Circuitronix” or “circumvent, attempt to circumvent, avoid, or by-pass Circuitronix in any way” “[u]ntil May 24, 2012 or . . . for two (2) years from the date of the last purchase order filled by Kinwong from that particular entity, whichever comes later.” It also affirmed that, “with respect to Kimball,” it would not “circumvent the intents and purposes of this Agreement by selling its products to those of Kimball‘s customers [for] whom Circuitronix is selling Kinwong‘s product to Kimball so that Kimball will be able to satisfy its customer‘s requirеments.”
The settlement agreement also added a liquidated-damages clause. This clause applied to breaches of specified provisions of the agreement, including the covenant. The parties agreed that it would be “extremely difficult” to determine actual damages if Kinwong were to breach the covenant and that the relationships between Circuitronix and the Schedule A companies were worth millions of dollars to Circuitronix. They decided that Kinwong would need to pay $2 million in liquidated damages for each breach that it caused.
The covenant and the liquidated-damages clause became important when Circuitronix sued Kinwong in 2017. Circuitronix invoked the jurisdiction of the district court based on diversity of citizenship.
Before trial, the district court placed limits on the kinds of damages that Circuitronix could seek. Circuitronix had planned to seek liquidated damages or, in the alternative, lost-profit damages. But the district court granted Kinwong partial summary judgment as to the unenforceability of the liquidated-damages clause. And it granted Kinwong‘s motion in limine to bar Circuitronix from seeking lost-profit damages. The district court explained that it was required to bar lost-profit damages because Circuitronix had failed to disclose its computation of those damages, and the failure was neither substantially justified nor harmless. It twice revisited the issue of lost-profit damages, and it twice reaffirmed its ruling.
The district court held a nine-day jury trial in 2019. During trial, Kinwong moved under
and it specified that Lear purchased Kinwong‘s products on behalf of General Motors and Nissan. Circuitronix argued that Kinwong breached the covenant not to circumvent when it sold products to General Motors and Nissan directly. Kinwong sought a directed verdict that, as a matter of contract interpretation, General Motors and Nissan fell outside the ambit of the covenant.
The jury found for Circuitronix. It awarded Circuitrоnix just over $1 million in compensatory damages. These damages reflect the out-of-pocket losses that Circuitronix sustained because of Kinwong‘s breaches.
After the trial concluded, the district court denied Kinwong‘s motion for a directed verdict. It concluded that Kinwong‘s proposed reading of the covenant was incorrect. So it entered judgment for Circuitronix on June 6.
Under
Circuitronix argued that this motion was untimely. Kinwong responded that, because the clerk‘s office was closed on Friday, July 5, its deadline tolled to July 8 and made its filing timely. See
filing “if the clerk‘s office is inaccessible . . . on the last day for filing under
The district court denied Kinwong‘s renewed motion. It did not address the issue of timeliness. Instead, it reiterated that Kinwong‘s motion failed as a mattеr of contract interpretation.
II. STANDARDS OF REVIEW
We review de novo the interpretation of the Federal Rules of Civil Procedure, Mega Life & Health Ins. Co. v. Pieniozek, 585 F.3d 1399, 1403 (11th Cir. 2009), and of contracts, Tims v. LGE Cmty. Credit Union, 935 F.3d 1228, 1237 (11th Cir. 2019). We also review de novo the denial of a motion for a directed verdict. State Farm Mut. Auto. Ins. Co. v. Williams, 824 F.3d 1311, 1315 (11th Cir. 2014). And we review de novo a summary judgment. Strickland v. Norfolk S. Ry. Co., 692 F.3d 1151, 1154 (11th Cir. 2012). When a district court imposes discovery sanctions, our review is “sharply limited” to an abuse-of-discretion standard and “a determination that the findings of the trial court are fully supported by the record.” Mee Indus. v. Dow Chem. Co., 608 F.3d 1202, 1211 (11th Cir. 2010) (internal quotation marks omitted).
III. DISCUSSION
We divide our discussion in three parts. We first review the denial of Kinwong‘s motions for a directed verdict. We then consider the enforceability of liquidated damages. We last address the exclusion of lost-profit damages.
A. The District Court Did Not Err by Denying Kinwong‘s Rule 50 Motions.
Circuitronix contests both the timeliness of Kinwong‘s
1. Kinwong‘s Rule 50(b) Motion Was Timely.
If a party makes an unsuccessful
day window fell on Thursday, July 4, 2019—a legal holiday—so
The question here is whether the closure of a courthouse tolls the filing deadline.
We concludе that the closure of the courthouse—and with it, the physical closure of the clerk‘s office—made the clerk‘s office inaccessible for purposes of
We reject the argument that the clerk‘s office remained accessible on July 5 because Kinwong could have filed its motion electronically.
Circuitronix responds that other aspects of the Federal Rules support its interpretation of accessibility, but we do not see how. True, “an outage of the electronic filing system” is sufficient to make the clerk‘s office inaccessible.
Interpretation of Legal Texts § 55, at 327–28 (2012), and nothing displaces that presumption here. Kinwong‘s
2. Kinwong‘s Rule 50 Motions Are Meritless.
Because we can reach the merits of Kinwong‘s
The question for us is whether the following covenant not to circumvent barred Kinwong from selling its products to General Motors and Nissan directly:
Covenant Not to Circumvent Until May 24, 2012 or, with respect to any particular entity listed on Schedule “A,” for two (2) years from the date of the last purchase order filled by Kinwong from that рarticular entity, whichever comes later, Kinwong . . . shall not directly or indirectly commence negotiations to enter into any type of business transaction, or enter into any type of business transaction, with any entity listed on Schedule A, except through Circuitronix, nor shall Kinwong circumvent, attempt to circumvent, avoid, or by-pass Circuitronix in any way. . . .
The operative Schedule A, adopted in 2013, lists several companies that Circuitronix recruited for Kinwong, to which Kinwong could sell products only through Circuitronix. It listed Lear as one such company:
B) Lear: All Locations shown [on Lear‘s website] and Automotive companies who we have existing projects for:
- GM
- Nissan
- Leoni
The parties disagree about the effect of listing General Motors and Nissan as Lear‘s customers. They agree that this addition makes those companies “entit[ies] listed on Schedule A.” But they disagree as to whether Kinwong could deal with General Motors and Nissan directly.
The parties assume that this question turns on the meaning of the word “from” in the covenant. Because the covenant in relevant part runs for two years “from the date of the last purchase order filled by Kinwong from [a covered] entity,” a first purchase order is necessary to trigger the protection. In Kinwong‘s view, Circuitronix must have placed an order “directly from” General Motors and Nissan to be able to regulate Kinwong‘s relationships with those companies. In Circuitronix‘s view, the triggеring order could have come “directly or indirectly from” General Motors and Nissan—that is, through Lear.
We agree with Circuitronix that Kinwong breached the covenant through its sales to General Motors and Nissan, but for a different reason. Whether or not the indirect relationships that Circuitronix has with General Motors and Nissan are protected by the covenant, no one disputes that the direct relationship between Circuitronix and Lear is protected. So Kinwong could not “circumvent, attempt to
circumvent, avoid, or by-pass” the relationship between Circuitronix and Lear “in any way.” Kinwong violated this restriction when it sold products to General Motors and Nissan—two end-clients of Lear—without going through Lear. See Circumvent, Webster‘s New International Dictionary (3d ed. 1993) (“to go around . . . or bypass without going through“; “to overcome or avoid the intent, effect, or force of“).
Our reading is confirmed by language in the covenant about the Kimball Electronics Corporation. The covenant established that Kinwong could not circumvent the relationship between Circuitronix and Kimball by selling its products to Kimball‘s end-clients. Kinwong argues that, because the covenant specified this prohibition as to Kimball but not to Lear, it was free to sell to Lear‘s end-clients. Although we ordinarily try to avoid surplusage, in this instance we “prefer ordinary meaning to an unusual meaning that w[ould] avoid surplusage.” Scalia & Garner, Reading Law § 26, at 176. In context, the specific prohibition of circumventing the rеlationship between
B. The District Court Did Not Err When It Ruled the Liquidated-Damages Clause Unenforceable.
Circuitronix cross-appeals the partial summary judgment in favor of Kinwong on the issue of liquidated damages. It contends that the liquidated-damages clause in the settlement agreement is enforceable. We disagree.
Under Florida law, a liquidated-damages clause is enforceable only if two conditions are satisfied. First, at the time the parties executed their contract, the actual damages that would follow from a breach must not have been readily ascertainable. Lefemine v. Baron, 573 So. 2d 326, 328–29 (Fla. 1991). And second, the stipulated damages must not be “so grossly disproportionate to any damages that might [have] reasonably [been] expected to follow from a breach as to show that the parties could have intended only to induce full performance, rather than to liquidate their damages.” Id. at 328. If it is unclear whether “a provision for payment of an arbitrary sum” is a penalty or genuine liquidated damages, then Florida courts tend to construe the provision as an unenforceable penalty. T.A.S. Heavy Equip. v. Delint, Inc., 532 So. 2d 23, 25 (Fla. Dist. Ct. App. 1988).
We need not cоnsider the first condition because it is clear that the second condition is not satisfied. The question of disproportionality operates as a proxy for the parties’ intentions at the time of contracting, so we ask what damages could have reasonably been expected at that point. See Hyman v. Cohen, 73 So. 2d 393, 401 (Fla. 1954) (en banc). Here, the parties set liquidated damages at $2 million for
each breach of the covenant not to circumvent, among other рrovisions. That sum well exceeds the actual damages that might have been expected from any individual breach. The owner of Circuitronix acknowledged that Kinwong would owe liquidated damages if it sold $10,000 of printed circuited boards to a distributor which then resold the boards to a customer covered by the covenant. And most of the allegedly breaching sales involved much less than $10,000. We grant that the value of the sales is not the full measure of damages; Kinwong‘s breachеs affected Circuitronix‘s relationships with its customers and its access to future business opportunities. Cf. Lawyers Title Ins. Corp. v. Dearborn Title Corp., 118 F.3d 1157, 1161 (7th Cir. 1997). But however much value we could ascribe to “goodwill” or “relationship building,” the parties were doing only about $3 million of total business each year when they adopted the liquidated-damages clause—five years into their contractual relationship. So $2 million a breach was grossly disproportionate to the foreseeable actual damages, and the disрroportionality amounts to an unenforceable penalty.
We are unpersuaded by Circuitronix‘s counterarguments. It first tries to narrow the meaning of “breach.” In its view, multiple “breaching acts“—the individual sales—constitute only one breach when they relate to the same project or customer. This reading belies the plain meaning of a breach—that it occurs whenever there is a violation of a contract. Breach, Black‘s Law Dictionary (11th
ed. 2019). And it finds no support in the parties’ agrеements. Circuitronix points out that the covenant discusses breaches in terms of business “transaction[s],” but that term does not by itself limit the scope of a breach. Discrete sales can be separate transactions
Circuitronix argues, in thе alternative, that the district court should have found a way to sever impermissible applications of the liquidated-damages clause from the rest of the clause. True, the settlement agreement included a severability clause. But the liquidated-damages clause here is not divisible, so it is unlike a severable clause that sets different amounts of liquidated damages for different kinds of breaches. Cf. Secrist v. Nat‘l Serv. Indus., Inc., 395 So. 2d 1280, 1282–83 (Fla. Dist. Ct. App. 1981). Indeed, Circuitronix does not propose any terms that might be severаble. Instead, it seems to suggest that the district court should have evaluated the proportionality of each breach on a case-by-case basis. Severability does not work that way. See Shotts v. OP Winter Haven, Inc., 86 So. 3d 456, 459 (Fla. 2011). And, again, we are concerned with the parties’ intent at the time of contracting, so a post hoc assessment of proportionality would be beside the point.
C. The District Court Did Not Abuse Its Discretion by Excluding Lost-Profit Damages.
Circuitronix also cross-appeals the district court‘s refusal to allow it to seek lost-profit damages. The district court excluded lost-profit damages because Circuitronix failed to disclose its computation of those damages.
If a party fails to provide information . . . as required by
Rule 26(a) or(e) , the party is not allowed to use that information . . . unless the failure was substantially justified or is harmless. In addition to or instead of this sanction, the court, on motion and after giving an opportunity to be heard:
- may order payment of the reasonable expenses, including attorney‘s fees, caused by the failure;
- may inform the jury of the party‘s failure; and
- may impose other appropriate sanctions, including any оf the orders listed in
Rule 37(b)(2)(A)(i) –(vi) .
Circuitronix does not dispute that its failure to disclose its computations of lost profits was unjustified, but it argues that the district court abused its discretion
when it concluded that the failure was not harmless. In its view, its omission was harmless because Kinwong could have done the computations itself. Circuitronix had disclosed how it planned to do the computations—“the simple mathematical formula of Kinwong‘s sales revenue multiplied by [Circuitronix‘s] profit margin“—and Kinwong had access to the underlying numbers.
We conclude that the district court did not abuse its discretion on this issue. Although we have not settled the meaning of harmlessness under
Circuitronix itself acknowledges that Kinwong suffered some degree of prejudice. It admits that it never specified how it would calculate its profit margin, an issue of importance in the calculation of lost-profit damages. Even if Circuitronix could have created multiple sets of comрutations to account for the
possible methods, the ease or complexity of that task is not determinative of harmlessness. The complexity of damages computations can be evidence that an omission was harmful, Mee Indus., 608 F.3d at 1222, but so can other problems. As Kinwong points out, Circuitronix‘s failure to disclose hampered Kinwong‘s damages expert from preparing his analysis before trial. Cf. Walter Int‘l Prods., Inc. v. Salinas, 650 F.3d 1402, 1413 (11th Cir. 2011). The district court did not abuse its discretion by finding harm.
Circuitronix also argues that exclusion was too severe a penalty in the circumstances. It is unclear if Circuitronix views the availability of lesser sanctions as contingent on its showing of harmlessness or if it believes that the district court has discretion to impose lesser sanctions even for violations that are unjustified and not harmless. The former falls with our conclusion about harmlessness, but the latter might be persuasive: the Second, Sixth, and Seventh Circuits have concluded that a district court has this discretion. Seе Design Strategy, Inc. v. Davis, 469 F.3d 284, 298 (2d Cir. 2006); Roberts ex rel. Johnson v. Galen of Va., Inc., 325 F.3d 776, 783–84 (6th Cir. 2003); Dura Auto. Sys. of Ind., Inc. v. CTS Corp., 285 F.3d 609, 615–16 (7th Cir. 2002); see also Taylor, 940 F.3d at 603 (J. Carnes, J., concurring specially) (discussing a circuit split on this issue). If they are right, then the district court committed legal error when it interpreted exclusion to be a mandatory sanction absent substantial justification or harmlessness, and legal error
is a per se abuse of discretion. Sec. & Exch. Comm‘n v. Marin, 982 F.3d 1341, 1352 (11th Cir. 2020).
But Circuitronix forfeited the issue of the discretion to impose lesser sanctions. It never challenged in the district court the assumption that
IV. CONCLUSION
We AFFIRM the judgment of the district court.