“The jury thus asked the court to resolve a factual 16 issue—whether the [party’s] breach was material—that the jury was charged with deciding.”
How later courts described this case
- “The jury thus asked the court to resolve a factual 16 issue—whether the [party’s] breach was material—that the jury was charged with deciding.”
- making 19 no mention that courts that narrowly construed covenants not to compete could only at the request 20 of a party
Written by the judges who cited it.
The opinion
1
2
3
4
5
6
7
8 UNITED STATES DISTRICT COURT
9 FOR THE EASTERN DISTRICT OF CALIFORNIA
10
11 ROADRUNNER INTERMODAL No.: 1:17-cv-01207-DAD-BAM, 1:17-cv-
SERVICES, LLC, a Delaware limited 01056-DAD-BAM (consolidated)
12 liability company,
13 Plaintiff,
ORDER DENYING PLAINTIFF AND
14 v. COUNTER-DEFENDANT JEFFREY COX’S
MOTION FOR RECONSIDERATION
15 T.G.S. TRANSPORTATION, INC., a
California corporation, and DOES 1-10,
16
Defendants. (Doc. No. 202)
17
18 JEFFREY COX,
19 Plaintiff,
20 v.
21 ROADRUNNER INTERMODAL
SERVICES, LLC, a Delaware limited
22 liability company, CENTRAL CAL
TRANSPORTATION, LLC, a Delaware
23 limited liability company, and DOES 1
through 50,
24
Defendants.
25
26
27
28
1 ROADRUNNER INTERMODAL
SERVICES, LLC, a Delaware limited
2 liability company,
3 Counter-Plaintiff and
Defendant,
4
v.
5
JEFFREY COX,
6
Counter-Defendant and
7 Plaintiff.
8
9 This matter is before the court on Jeffrey Cox’s motion for reconsideration of the court’s
10 March 27, 2019 order denying Cox’s motion for partial summary judgment. (Doc. No. 202-1.) A
11 hearing on this motion for reconsideration was held on May 21, 2019. Attorney Kurt Kappes
12 appeared telephonically on behalf of defendants Roadrunner Intermodal Services, LLC
13 (“Roadrunner”) and Central Cal Transportation (“Central Cal”). Attorney Howard Sagaser
14 appeared on behalf of Jeffrey Cox (“Cox”). Having reviewed the parties’ briefing and heard oral
15 argument, and for the reasons that follow, Cox’s motion for reconsideration will be denied.
16 FACTUAL BACKGROUND
17 The factual background of this case has been discussed in this court’s prior orders denying
18 Roadrunner’s motion for a preliminary injunction and denying Cox’s partial motion for summary
19 judgment. (See Doc. Nos. 90 at 2–4; 199 at 2–4.) That background will not be repeated here in
20 its entirety. In summary, Roadrunner, Central Cal, and Cox, among other parties, entered into a
21 stock purchase agreement (“SPA”) on November 2, 2012, pursuant to which Roadrunner
22 purchased all the stock and assets of Central Cal and Double C Transportation, another trucking
23 company, for approximately $3.8 million.1 (Id.) The SPA also included an earn-out payment to
24 /////
25 /////
26
1 Roadrunner is an industry leader in providing regional and national drayage services throughout
27 the United States. (Doc. No. 22 at 3.) Central Cal is a smaller, regional trucking company that
operates trucking routes within California, Nevada, and Oregon for clients throughout the
28
1 Cox if certain parameters regarding Central Cal’s earnings before interest, taxes, depreciation,
2 and amortization (“EBITDA”) were met. (Id. at 3.)2
3 Cox continued working for Central Cal after it was sold to Roadrunner. While working
4 for Central Cal, Cox noticed irregularities in Roadrunner and Central Cal’s accounting, which
5 affected the way the company’s EBITDA was being calculated. Cox was concerned that the
6 accounting irregularities were due to intentional fraud in violation of federal securities laws and
7 by September of 2016, communicated these concerns to executives at Roadrunner. (See Doc. No.
8 98 at ¶¶ 22–28.)
9 On or about January 30, 2017, Roadrunner publicly stated that it had become aware of
10 various accounting discrepancies within the company, and that the public should not rely on
11 various financial statements and associated reports previously filed by Roadrunner with the SEC.
12 (Id. at ¶ 37.) In January 2017, Cox’s role was changed from the Vice-President of Operations at
13 Central Cal to a sales role at Roadrunner. (Id. at ¶ 39.) In February 17, 2017, Cox and David
14 Chidester, another prior owner of Central Cal, initiated a suit against Roadrunner over issues
15 related to the earn-out payment, which was not resolved through a mediation. (See Doc. No. 113-
16 1 at 5–6.) Roadrunner terminated Cox on May 31, 2017. (Id. at 6.) On July 25, 2017, Cox filed
17
18 2 The SPA included several provisions that are at issue in this action. (See Doc. No. 113-2 at 5–8
(“SPA”).) First, the non-competition provisions of the agreement stated that Cox was not
19 permitted to acquire or work for or with any entity that engages in any facet of Central Cal’s
businesses, or that competes with Roadrunner’s business. (SPA at § 7.4 (a)(i)(B).) Cox was also
20
not permitted to use his special knowledge of Central Cal’s business to compete with Roadrunner
21 in any aspect of Central Cal’s business. (Id. at § 7.4 (a)(i)(C).) The non-solicitation provision of
the agreement prevented Cox from contacting Central Cal customers or inducing Central Cal
22 employees from leaving the company. (Id. at § 7.4(a)(ii)(B)-(D).) The non-disclosure provision
also prohibited Cox from disclosing Central Cal’s confidential or trade secret information. (Id. at
23 § 7.4(a)(iii).) All of these provisions limited Cox’s conduct from the date of the closing until
December 31, 2017 throughout the entire United States. (See id. at § 7.4(a)(i).) In addition, the
24
SPA included a savings provision that permitted substitution of a different duration, scope, or
25 area, if a court found that any of the restrictions imposed by the agreement were unreasonable.
(Id. at § 7.4(c).) Additionally, the SPA acknowledged that the protective covenants were
26 “necessary to protect the legitimate, protectable interests of [Central Cal] . . . [and] the goodwill
of the business of [Central Cal] and [Roadrunner] . . ..” (Id.) Attached to the SPA was a legal
27 opinion from Cox’s own counsel, opining that the SPA was “legal, valid and binding” and
enforceable against the sellers, including Cox. (Doc. No. 121-1 at 55.)
28
1 a complaint in Fresno County Superior Court asserting causes of action relating to his termination
2 which he alleged was wrongful. (Id.) Cox accepted employment with T.G.S. Transportation, Inc.
3 (“T.G.S.”) beginning in July 2017. (Doc. No. 90 at 3.) Roadrunner filed its action against T.G.S.
4 in this court on August 7, 2017.
5 On February 7, 2018, the undersigned denied Roadrunner’s motion for a preliminary
6 injunction, granted T.G.S.’s motion to consolidate this case with Cox v. Roadrunner Intermodal
7 Services, LLC, et al., No. 1:17-cv-01207-DAD-BAM (E.D. Cal.), and granted Cox’s motion to
8 intervene. (Doc. No. 90.) On March 28, 2019, the court issued an order denying Cox’s motion
9 for partial summary judgment, which had sought a declaratory judgment that the non-competition
10 provisions of the parties’ SPA were unlawful and unenforceable. (Doc. No. 199.) The court held
11 that the non-competition provisions were properly analyzed under California law; that the non-
12 competition provisions were permitted under California Labor Code § 16601 because they were
13 executed as an adjunct to the sale of goodwill; and that the non-competition provisions of the
14 SPA could be narrowly construed so as to be enforced only in areas where Central Cal carried on
15 business and/or had established goodwill. (Id.)
16 LEGAL STANDARD
17 Federal Rule of Civil Procedure 60(b)(1) provides that “[o]n motion and upon such terms
18 as are just, the court may relieve a party. . . from a final judgment, order, or proceeding” for
19 “mistake, inadvertence, surprise, or excusable neglect,” or “any other reason justifying relief from
20 the operation of judgment.” Relief under Rule 60 “is to be used sparingly as an equitable remedy
21 to prevent manifest injustice and is to be utilized only where extraordinary circumstances” exist.
22 Harvest v. Castro, 531 F.3d 737, 749 (9th Cir. 2008) (internal quotations marks and citation
23 omitted) (addressing reconsideration under Rule 60(b)(1)–(5)). The moving party “must
24 demonstrate both injury and circumstances beyond his control.” Id. (internal quotation marks and
25 citation omitted). Further, Local Rule 230(j) requires, in relevant part, that in moving for
26 reconsideration of an order denying or granting a prior motion, a party must show “what new or
27 different facts or circumstances are claimed to exist which did not exist or were not shown”
28 previously, “what other grounds exist for the motion,” and “why the facts or circumstances were
1 not shown” at the time the substance of the order which is objected to was considered.
2 “A motion for reconsideration should not be granted, absent highly unusual
3 circumstances, unless the district court is presented with newly discovered evidence, committed
4 clear error, or if there is an intervening change in the controlling law,” and it “may not be used to
5 raise arguments or present evidence for the first time when they could reasonably have been
6 raised earlier in the litigation.” Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571
7 F.3d 873, 880 (9th Cir. 2009) (internal quotations marks and citations omitted); Kona
8 Enterprises, Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000).
9 DISCUSSION
10 Cox moves for reconsideration pursuant to Federal Rule of Civil Procedure 60(b) and
11 Local Rule 230(j), arguing that the court erred in reforming the SPA; that newly discovered
12 evidence necessitates a different holding; and that, because reformation is inappropriate, the court
13 should grant Cox’s motion for partial summary judgment. (See Doc. No. 202-1 at 10.)
14 A. Whether Reconsideration Should Be Granted Based on New Evidence
15 As noted, Cox argues that the court should reconsider its decision to reform the SPA’s
16 non-competition clause due to newly discovered evidence. (Doc. No. 202-1 at 11.) The “newly
17 discovered evidence” that Cox points to is the result of an arbitration involving the earn-out
18 provisions of the SPA, in which an arbitrator, mutually appointed by the parties, determined that
19 “Roadrunner is obligated to pay . . . Cox and Chidester an earn-out payment pursuant to Section
20 1.5 of the SPA in the amount of $2,100,086.” (Id. at 12.) The arbitration occurred in the context
21 of a separate lawsuit, in which Cox and Chidester sued Roadrunner and Central Cal for breach of
22 contract claims related to the earn-out payments provided for in the SPA. (See id. at 11.)3
23
3 On June 11, 2019, Cox filed with this court a request for judicial notice of the order from the
24
Los Angeles Superior Court confirming this arbitration award. (Doc. No. 219.) Pursuant to the
25 Federal Rule of Evidence 201(b), a court may “judicially notice a fact that is not subject to
reasonable dispute because it: (1) is generally known within the trial court’s territorial
26 jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot
reasonably be questioned.” Fed. R. Evid. 201(b). Public records are properly the subject of
27 judicial notice because the contents of such documents contain facts that are not subject to
reasonable dispute, and the facts therein “can be accurately and readily determined from sources
28
1 Assuming arguendo that the order confirming an arbitration award to Cox is evidence,4
2 the court is not persuaded that this evidence is either new or could not have been presented prior
3 to the order of which reconsideration is now sought. The arbitrator’s decision was issued on
4 March 5, 2019, while the court did not issue its order denying Cox’s motion for summary
5 judgment until March 28, 2019. (See Doc. No. 199.) In the interim, Cox did not submit notice of
6 the arbitrator’s decision to this court to supplement his motion for partial summary judgment.
7 Cox argues, however, that “the relevance of the arbitrator’s decision to the Court’s decision . . .
8 did not become apparent until after the court decided, on its own initiative, to reform the
9 contract.” (Doc. No. 209 at 6.)
10 For several reasons, the court is skeptical that Cox was blindsided by the court’s decision
11 to reform the non-competition provisions by limiting its scope. First, Cox’s motion for partial
12 summary judgment included a summary of the earn-out matter that was the subject of the
13 arbitration award as part of the factual background of the case. (See Doc. No. 113-1 at 5–6.) If
14 Cox thought the earn-out matter was relevant to his motion, it would have been reasonable to
15 update the court upon issuance of the arbitrator’s decision. Second, Cox’s own reply in support
16 of his motion for partial summary judgment requested that the court partially enforce5 the non-
17
18 Inc., 499 F.3d 1048, 1052 (9th Cir. 2007). A court “may take notice of proceedings in other
courts, both within and without the federal judicial system, if those proceedings have a direct
19 relation to matters at issue.” U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc.,
971 F.2d 244, 248 (9th Cir. 1992) (quoting St. Louis Baptist Temple, Inc. v. FDIC, 605 F.2d
20
1169, 1172 (10th Cir. 1979). Here, Cox requests judicial notice of a state court order confirming
21 an arbitration award, which is relevant to his motion for reconsideration. (See Doc. No. 219.)
Accordingly, Cox’s request for judicial notice is granted.
22
4 Roadrunner contests that the arbitrator’s March 5, 2019 finding is a legal conclusion rather than
23 a finding of fact but provides no legal authority in support of this assertion. (See Doc. No. 206 at
6–7.)
24
25
5 The undersigned acknowledges that it may have imprecise in its prior order in referring to the
court’s “reforming” of the contract, since that word choice could be construed as the court having
26 greater discretion in defining the contract than it actually exercised. (See Doc. No. 199 at 18–19.)
It may well have been more accurate to state that the court was merely enforcing the contract to
27 the extent permitted by law as directed by its savings provision. Nonetheless, to limit any
confusion, the court will continue to refer to its “reformation” of the non-competition provisions
28
1 competition provisions. (See Doc. No. 124 at 8.) In this regard, Cox himself argued that the
2 court should “refuse to modify the illegal agreement” or alternatively, “if instead the court
3 modifies the non-compete provisions” (i.e., reform the contract), “it is respectfully requested the
4 court modify it to be at or less than 55 months . . ..” (Id.) Despite himself requesting that the
5 court consider limiting the non-competition provision while enforcing the contract, Cox failed to
6 present the equitable arguments in support of his motion for partial summary judgment that he
7 now advances for the first time in his motion for reconsideration. See Kona Enterprises, Inc. v.
8 Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000) (“A Rule 59(e) motion may not be used to
9 raise arguments or present evidence for the first time when they could reasonably have been
10 raised earlier in the litigation.”)
11 Third, in its moving for a preliminary injunction, Roadrunner specifically argued that the
12 savings clause, found at section 7.4(c) of the parties’ SPA, was valid under California law.6 (See
13 Doc. No. 63 at 6–8.) Roadrunner’s argument in this regard certainly put Cox on notice that
14 reformation of the contract pursuant to the savings provision was a possibility. Finally, in
15 briefing the motion for partial summary judgment, the parties both cited to the decision in
16 Strategix, Ltd., 142 Cal. App. 4th at 1074, in which that court discussed how “[c]ourts have ‘blue
17 penciled’ noncompetition covenants with overbroad or omitted geographic and time restrictions
18 to include reasonable limitations.” (See Doc. Nos. 113-1 at 10; 121 at 10.) For all of these
19 reasons, Cox was on notice that the court could potentially narrow the non-competition provisions
20 of the SPA and partially enforce it.
21 Nonetheless, the court is somewhat sympathetic to Cox’s contention that it ruled in a
22 manner that the parties did not fully anticipate and on legal grounds that were not fully briefed by
23 the parties in connection with his motion for partial summary judgment. Therefore, in the
24 interests of justice, the court will consider Cox’s new arguments as to why the non-competition
25 provision of the SPA should not be reformed, as well as the evidence upon which those
26 arguments are based.
27
6 For reasons that are not clear to the court, Roadrunner did not advance that argument in its
28
1 B. The Court Did Not Err in Reforming the SPA
2 Cox argues that reformation of the non-competition provisions is inappropriate. Below,
3 the court will explain why it disagrees with this contention without repeating the analysis set forth
4 in its March 28, 2019 order which is incorporated herein.7
5 1. Reformation Is Appropriate Pursuant to the Savings Provision
6 As a preliminary matter, the court finds that section 7.4(c) of the SPA explicitly
7 contemplates contract reformation and states:
8 Savings Provisions. If at the time of enforcement of any of the
covenants contained in Section 7.4(a) above (the “Protective
9 Covenants”), a court shall hold that the duration, scope or area
restrictions stated therein are unreasonable under circumstances then
10 existing, the parties agree that the maximum duration, scope or area
reasonable under such circumstances shall be substituted for the
11 stated duration, scope or area and that the court shall be allowed and
directed to revise the restrictions contained herein to cover the
12 maximum period, scope and area permitted by law.
13 (Doc. No. 113-2 at 7–8) (italics indicate emphasis added). The parties’ SPA, which was attached
14 to Cox’s motion for partial summary judgment, directs the court to do exactly what it did: narrow
15 the geographic scope of the non-competition provision to make it enforceable under California
16 law. Roadrunner did not direct the court to the savings provision in its opposition to Cox’s
17 motion for partial summary judgment but had previously discussed that provision in moving for a
18 preliminary injunction. (See Doc. No. 63 at 6–8.) In ruling on Cox’s motion for partial summary
19 judgment seeking declaratory relief, the court reviewed the entire SPA, including the savings
20 provision.
21 “Reformation is an equitable remedy the essential purpose of which is to ensure the
22 contract, as reformed, reflects the parties’ mutual intention.” Komorsky v. Farmers Ins. Exch., 33
23
7 For example, Cox urges the court to take the approach set forward in Strategix , Ltd. v.
24
Infocrossing West, Inc., 142 Cal. App. 4th 1068, 1074 (2006) to find that an overbroad non-
25 competition provision is illegal. (See Doc. No. 202-1 at 26–27.) The court cited and considered
Strategix in its prior order, but found the reasoning of cases such as Hill Med. Corp. v. Wycoff, 86
26 Cal. App. 4th 895, 902 (2001) (stating that a non-competition provision may be restructured in “a
situation in which an otherwise valid covenant covers an unreasonably large geographical area or
27 is unreasonably long in duration.”) to be more persuasive. (See Doc. No. 199 at 18.) The court
will not reiterate its already provided reasoning as to why the non-competition provisions of the
28
1 Cal. App. 5th 960, 974, as modified on denial of reh’g (Mar. 29, 2019), review denied (June 19,
2 2019). By including the savings provision in their SPA, the parties demonstrated their intent to
3 be bound by non-competition provisions for the “maximum period, scope and area permitted by
4 law.” (See Doc. No. 113-2 at 8.) “Reformation may be had for a mutual mistake or for the
5 mistake of one party which the other knew or suspected, but in either situation the purpose of the
6 remedy is to make the written contract truly express the intention of the parties.” Komorsky, 33
7 Cal. App. 5th at 974 (citing Lemoge Electric v. County of San Mateo, 46 Cal.2d 659, 663 (1956)).
8 Here, the parties were mistaken regarding the enforceability of certain non-competition
9 provisions of their agreement. Both Cox and Roadrunner were sophisticated parties and
10 consulted independent counsel, who advised them that the non-competition provisions were
11 enforceable under California law. Cox cannot seriously dispute that, at the time of contract
12 formation, the parties intended to ensure that Cox would not compete with Roadrunner by joining
13 a competitor in California, such as T.G.S. See also Lemoge Elec. v. San Mateo Cty., 46 Cal. 2d
14 659, 663 (1956); Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 123–24
15 (2000) (“Two reasons for severing or restricting illegal terms rather than voiding the entire
16 contract appear implicit in case law. The first is to prevent parties from gaining undeserved
17 benefit or suffering undeserved detriment as a result of voiding the entire agreement —
18 particularly when there has been full or partial performance of the contract.”). Therefore, in light
19 of the savings provision in the parties’ SPA, the manner in which the court reformed the contract
20 reflected the intent of the parties to be bound by a non-competition provision that was enforceable
21 under California law.
22 2. Reformation Is Appropriate Pursuant to California Civil Code § 3399
23 Cox next argues that in reforming the contract, the court omitted any reference to
24 California Civil Code § 3399, which does not permit sua sponte reformation. (Doc. No. 202-1 at
25 20.) California Civil Code § 3399 states:
26 When, through fraud or a mutual mistake of the parties, or a mistake
of one party, which the other at the time knew or suspected, a written
27 contract does not truly express the intention of the parties, it may be
revised on the application of a party aggrieved, so as to express that
28
1 intention, so far as it can be done without prejudice to rights acquired
by third persons, in good faith and for value.
2
3 However, § 3399 does not indicate that it provides the exclusive basis for reformation. Rather,
4 “[i]t is well settled that the remedy of reformation is equitable in nature and not restricted to the
5 exact situations stated in section 3399.” Jones v. First Am. Title Ins. Co., 107 Cal. App. 4th 381,
6 388 (2003), as modified on denial of reh’g (Apr. 23, 2003) (citing Demetris v. Demetris, 125 Cal.
7 App. 2d 440, 443 (1954)). Therefore, an equitable remedy such as reformation is not limited to
8 circumstances explicitly outlined in § 3399, especially here, where the contract at issue includes a
9 specific savings provision and contemplates the reformation of the contract to cover the
10 maximum period, scope, and area permitted by law.
11 The court is not aware of, and Cox has not cited, any cases standing for the proposition
12 that the court may narrow a non-competition agreement pursuant to § 16601 only at the request of
13 one party. In the order denying Cox’s motion for partial summary judgment, the court noted that
14 “California courts have reformed contracts and narrowly construed non-competition agreements
15 if they appeared in the context of the sale of goodwill.” (Doc. No. 199 at 18.) “Several decisions
16 ‘saved’ covenants not to compete by narrowly construing them, but these covenants were
17 contained in agreements to sell goodwill, where such covenants are permitted under Business and
18 Professions Code section 16601.” Kolani v. Gluska, 64 Cal. App. 4th 402, 406 (1998) (making
19 no mention that courts that narrowly construed covenants not to compete could only at the request
20 of a party). Cox has failed to offer clear authority suggesting that the March 28, 2019 order was
21 erroneous as a matter of law. Having reconsidered the legal basis for that order, the court adopts
22 it once again.
23 C. Even Considering Cox’s New Evidence, Reformation Was Appropriate
24 Cox argues that the court should not have reformed the non-competition provisions of the
25 SPA due to the arbitrator’s finding, which was later confirmed by the state court, that Roadrunner
26 owes Cox and Chidester earn-out payments $2,100,086.00. (See Doc. Nos. 202-1 at 11–13; 209
27 at 9; 219 at 9.)
28 /////
1 1. Material Breach
2 In opposition to the pending motion for reconsideration, Roadrunner argues that the
3 breach of one covenant in the SPA does not prevent its enforcement of the non-competition
4 provisions, nor does it excuse Cox from performing in accordance with those provisions. (Doc.
5 No. 206 at 10–11.) Cox argues that, even if the court stands by its decision to reform the non-
6 competition provisions of the parties’ SPA, he should be excused from complying with those
7 provisions due to Roadrunner’s failure to pay him the earn-out payments in breach of the SPA.
8 (See Doc. No. 209 at 8–12.)
9 “When a party’s failure to perform a contractual obligation constitutes a material breach
10 of the contract, the other party may be discharged from its duty to perform under the contract.”
11 Brown v. Grimes, 192 Cal. App. 4th 265, 277 (2011) (citing 1 Witkin, Summary of Cal. Law
12 (10th ed. 2005) Contracts, §§ 813, 814, p. 906 (Witkin)). “Normally the question of whether a
13 breach of an obligation is a material breach, so as to excuse performance by the other party, is a
14 question of fact.” Brown, 192 Cal. App. 4th at 277 (citing cases); see also Crowley v. Epicept
15 Corp., 883 F.3d 739, 750 (9th Cir. 2018) (“The jury thus asked the court to resolve a factual
16 issue—whether the [party’s] breach was material—that the jury was charged with deciding.”).
17 Here, there is evidence supporting the position of both parties to the SPA on the question
18 of whether Roadrunner’s failure to pay the earn-out payment constituted a material breach of that
19 agreement. In the arbitration proceeding, the arbitrator was not asked to determine if either party
20 breached the earn-out provision, but rather merely concluded that Roadrunner owed Cox and
21 Chidester $2,100,086.00. (See Doc. No. 219 at 9.) On one hand, the arbitrator found that Cox
22 should have received approximately $1,050,000.00 in earn-out payments from Roadrunner–a
23 sizable sum compared to the approximately $130,946.00 cash payment that Cox states that he
24 received from the SPA. (See Doc. No. 209 at 10–11.) On the other hand, however, the SPA by
25 its terms actually provided that Roadrunner would buy all of Cox’s shares of Central Cal and
26 Double C Transportation for $3,850,000, after absorbing an unknown amount of the debt amassed
27 by those two companies. (See Doc. No. 219 at 5.)
28 /////
1 Based on the evidence before it in connection with Cox’s motion for partial summary
2 judgment and now on his motion for reconsideration of the court’s order denying that motion, the
3 court cannot conclude that Roadrunner materially breached the SPA because based upon that
4 evidence, a reasonable jury could reach a different conclusion. Therefore, upon reconsideration,
5 the court will not alter its prior order denying Cox’s motion for partial summary judgment. Of
6 course, at the trial of this action, Cox will be allowed to present evidence and argue that
7 Roadrunner’s breach was “a material breach [that] excuses further performance by the innocent
8 party.” Plotnik v. Meihaus, 208 Cal. App. 4th 1590, 1602 (2012).
9 2. Unclean Hands
10 Cox also argues that reformation of the non-competition provisions of the parties’ SPA is
11 barred by the doctrine of unclean hands because, as found by the arbitrator, Roadrunner has
12 refused to pay him contractually designated earn-out payments. (Doc. No. 202-1 at 13–17.)
13 Roadrunner responds that Cox has not established that it has unclean hands and that such a
14 contention involves disputed issues of fact to be determined by a trier of fact. (Doc. No. 206 at
15 11–12.)
16 “The doctrine [of unclean hands] demands that a [party] act fairly in the matter for which
17 he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be
18 denied relief, regardless of the merits of his claim.” Kendall-Jackson Winery, Ltd. v. Super. Ct.,
19 76 Cal. App. 4th 970, 978 (1999), as modified on denial of reh’g (Jan. 3, 2000) (citing cases).
20 “Under California law regarding the applicability of the unclean hands defense, ‘[t]he focus is the
21 equities of the relationship between the parties, and specifically whether the unclean hands
22 affected the transaction at issue.’” Biller v. Toyota Motor Corp., 668 F.3d 655, 667 (9th Cir.
23 2012) (quoting Jaramillo v. County of Orange, 200 Cal. App. 4th 811, 820 (2011)). Generally,
24 the question of whether a party has unclean hands is a question of fact. See Kendall-Jackson
25 Winery, 76 Cal. App. 4th at 978 (citing CrossTalk Prod., Inc. v. Jacobson, 65 Cal. App. 4th 631,
26 639 (1998)); see also Andresen v. Int’l Paper Co., No. 2:13-cv-02079-CAS-AJW, 2014 WL
27 12587049, at *10 (C.D. Cal. Oct. 28, 2014) (citing cases).
28 /////
1 The court’s reasoning with respect to Cox’s argument that his motion for partial summary
2 judgment should have been granted based upon his unclean hands defense is similar to its
3 reasoning with respect to his argument that Roadrunner’s actions constituted a material breach of
4 the SPA—thereby entitling him to partial summary judgment. Though the arbitrator determined
5 the amount of earn-out payments that Roadrunner owed Cox, the arbitrator did not find as a
6 matter of law that Roadrunner breached the SPA. (See Doc. No. 202-3 at 154–155.) At
7 arbitration, Cox complained of Roadrunner’s failure to make the proper earn-out payments and
8 the arbitrator decided the amount owed. Cox has not presented any authority in his pending
9 motion which persuades the court that this determination by the arbitrator, as a matter of law,
10 excuses his performance under the parties’ non-competition provisions. Rather, at most, Cox has
11 established an issue of triable fact for a jury to resolve in this regard.
12 3. Laches
13 Cox next argues that the court’s March 28, 2019 order was issued in error because
14 previously, Roadrunner merely sought to enforce the overbroad clauses of the non-competition
15 provisions as written and should now be prohibited from requesting their reformation. (Doc. No.
16 202-1 at 18.) Roadrunner responds that it did not delay in requesting reformation, and further,
17 that Cox suffered no prejudice as a result of any potential delay in its doing so. (Doc. No. 206 at
18 12–14.)
19 “The defense of laches requires unreasonable delay plus either acquiescence in the act
20 about which plaintiff complains or prejudice to the defendant resulting from the delay.” Conti v.
21 Bd. of Civil Serv. Commissioners, 1 Cal. 3d 351, 359 (1969). “If because of his delay in seeking
22 his remedy, without offering a satisfactory explanation for the delay, a prejudice results to his
23 adversary, he will be precluded from enforcing his demand.” Brown v. State Pers. Bd., 43 Cal.
24 App. 2d 70, 79 (1941).
25 Cox’s laches arguments are unconvincing, given the court’s reasoning that contract
26 reformation pursuant to the very specific savings provision of the SPA’s non-competition
27 agreement was appropriate. Cox agreed to the SPA and was on clear notice from the start that the
28 non-competition provisions could be narrowed by a court. Further, even if the court were to
1 accept the notion that Roadrunner in some way delayed in requesting reformation, Cox has failed
2 to establish that he has been prejudiced by any such a delay. In a declaration Cox has stated that
3 he
4 believed that Roadrunner could not enforce the non-competition
provision against me because it was overbroad. Had I known that
5 Roadrunner would have sought to modify the non-competition
provisions so to fix the geographical scope issue, I likely would have
6 sought additional legal opinions and possibly ceased working in the
transportation industry until after the expiration of the non-
7 competition provision (December 31, 2017) or looked for a job in
another state where the non-competition agreement could not be
8 enforced against me under any proposed modification.
9 (Doc. No. 202-2 at 3–4, ¶ 12.) Cox is equivocal at best in this declaration. His after–the–fact
10 attempt to explain what he would have done under certain circumstances fails to persuade the
11 court that he was prejudiced by Roadrunner’s actions.8 Based on the evidence submitted in
12 connection with Cox’s motion for partial summary judgment and the pending motion for
13 reconsideration, the court cannot conclude that the defense of laches precludes reformation of the
14 parties’ agreement.
15 4. Reformation Does Not Prejudice T.G.S.
16 Finally, Cox argues that even if Roadrunner could demonstrate fraud or a reformable
17 mistake, reformation of the non-competition clause is inappropriate because it prejudices the
18 rights acquired by T.G.S. (Doc. No. 202-1 at 23–25.)
19 Cox’s argument is based on the conclusion that T.G.S. acquired an interest in invalidating
20 the non-competition agreement for value when the company hired Cox following his termination
21 from Roadrunner. See Cal. Civil Code § 3399 (reformation is permitted “so far as it can be done
22 without prejudice to rights acquired by third persons, in good faith and for value.”); Lin v.
23 Coronado, 232 Cal. App. 4th 696, 705 (finding that the plaintiff could not avail herself of
24 reformation because a third party would be prejudiced). Even if the court were not skeptical of
25 this creative theory, Cox has failed to submit any evidence in support of an argument that T.G.S.
26 relied on future invalidation of the non-competition provision when they hired Cox. Absent such
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8 Whether Cox, as he apparently suggests in his declaration, relied upon inaccurate or incomplete
28
1 | evidence, the court will not reconsider its prior order based on this argument.
2 CONCLUSION
3 Accordingly, Cox’s motion for reconsideration (Doc. No. 202) of the court’s March 27,
4 | 2019 order is denied.
5 | IT IS SO ORDERED. a "
6 /}/ fP A;
Dated: _ August 21, 2019 wea rE
7 UNITED STATES DISTRICT JUDGE
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