ACTCA, a Member of the Alliance, Inc. v. Rhythm Pharmaceuticals, Inc.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

Present: The Honorable CHRISTINA A. SNYDER

Catherine Jeang Debbie Hino-Spaan N/A

Deputy Clerk Court Reporter / Recorder Tape No.

Attorneys Present for Plaintiffs: Attorneys Present for Defendants:

Peter Sunukjian Alexander Wyman

Nathan Sandals

Rachel Samuels

Proceedings: PLAINTIFF’S MOTION FOR JUDGMENT AS A MATTER OF

LAW (Dkt. 221, filed on August 14, 2024)

PLAINTIFF’S MOTION FOR A NEW TRIAL (Dkt. 222, filed on

August 14, 2024)

DEFENDANT’S MOTION FOR PREJUDGMENT INTEREST

AND COSTS (Dkt. 220, filed on August 14, 2024)

I. INTRODUCTION AND BACKGROUND

On December 21, 2021, plaintiff ACTCA, A Member of the Alliance, Inc.

(“ACTCA”) filed this action against defendant Rhythm Pharmaceuticals, Inc. (“Rhythm”

or “defendant’”) and Does 1 through 10 in Los Angeles Superior Court. Dkt. 1-4, Exh. D.

Defendant removed the case to this Court on the basis of diversity jurisdiction. Dkt. 1.

Plaintiff alleges a state law claim for breach of contract, as against all defendants. Id. J

14-18. Plaintiff's claim arises out of a series of written agreements between defendant

Rhythm and plaintiffs ACTCA; SFCT, A Member of the Alliance, Inc.; ICTLV, Inc.: and

NYCT, A Member of the Alliance, Inc., (collectively “Axis” or “plaintiff’) to conduct

two separate clinical trials. Id. 8. Axis alleges that Rhythm failed to tender the

amounts owed to Axis pursuant to the agreements. Id. § 11-12.

On April 14, 2022, Rhythm filed the operative First Amended Counterclaims

against Axis. Dkt. 26. Its remaining claims at trial were for: (1) breach of contract; (2)

breach of the implied covenant of good faith and fair dealing; and (3) breach of the

implied duty to perform with reasonable care. Dkt. 51 at 18.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

The Court held a jury trial on September 6, 7, 8, 12, 13, 14, and 15, 2023. Dkts.

104, 106-107, 114-116, 121. The jury returned the following verdicts: (1) “On Axis’s

claim for breach of contract, do you find that Rhythm breached the contract between the

parties?” “Yes, we find in favor of Axis and against Rhythm and award damages to Axis

in the amount of $2,300,000.00:” (2) “On Rhythm’s claim for breach of contract, do you

find that Axis breached the contract between the parties?” “Yes, we find in favor of

Rhythm and against Axis and award damages to Rhythm in the amount of $900,000.00:”

(3) “On Rhythm’s claim in the alternative for breach of the implied covenant of good

faith and fair dealing, do you find that Axis breached the implied covenant of good faith

and fair dealing in the contract between Axis and Rhythm?” “Yes, we find in favor of

Rhythm and against Axis and award damages to Rhythm in the amount of $0;” (4) “On

Rhythm’s claim in the alternative for breach of the implied duty to perform with

reasonable care, do you find that Axis breached its duty to perform with reasonable care

in its performance under the contract between Axis and Rhythm?” “No, we find in favor

of Axis and against Rhythm.” Dkt. 125.

On October 11, 2023, defendant filed motions for (1) judgment as a matter law; (2)

an order amending the judgment; (3) preyudgment interest; and (4) costs. Dkt. 128. That

same day, plaintiff filed a motion for preyudgment interest and costs, as well as a motion

for judgment as a matter of law on defendant’s counterclaims. Dkts. 129, 130. On

November 13, 2023, the Court denied parties’ motions for judgment as a matter of law

and on its own motion ordered a new trial. Dkt. 140 at 14.

The Court held a second jury trial on July 9, 10, 11, 12, 16, and 17, 2024. Dkts.

193, 199, 200, 201, 205, 206. The jury returned the following verdicts: (1) finding in

favor of Rhythm on its counterclaim for breach of the GO-ID Contracts, awarding

damages of $2,009,503.53; (2) finding in favor of Rhythm on its counterclaim for breach

of the Basket contracts, awarding damages of $747,420.75; (3) finding Axis breached the

implied covenant of good faith and fair dealing in the GO-ID Contracts, awarding

damages of $0; (4) finding that Axis breached its duty to perform with reasonable care in

carrying out its obligations under the GO-ID contracts, awarding damages of $0; (5)

finding that Axis breached the implied covenant of good faith and fair dealing in the

Basket Contracts, awarding damages of $0; (6) finding that Axis breached its duty to

perform with reasonable care in carrying out its obligations under the Basket Contracts,

awarding damages of $0. Dkt. 218.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

On August 14, 2024, Axis filed the instant motion for judgment as a matter of law

and a motion for a new trial. Dkts. 221, 222. On August 26, 2024, Rhythm filed an

opposition to both motions. Dkt. 223. On September 3, 2024, Axis replied. Dkts. 228,

229. Also on August 14, Rhythm filed a motion for prejudgment interest and costs. Dkt.

220. On August 26, 2024, Axis filed an opposition. Dkt. 224. On September 3, 2024,

Rhythm replied. Dkt. 227.

On September 16, 2024, the Court held a hearing on the matter. Having carefully

considered the parties’ arguments and submissions, the Court finds and concludes as

follows.

I. LEGAL STANDARD

A. Judgment as a Matter of Law

Judgment as a matter of law is appropriate when “a party has been fully heard on

an issue during a jury trial and the court finds that a reasonable jury would not have a

legally sufficient evidentiary basis to find for the party on that issue... .” Fed. R. Civ. P.

50(a)(1); see also Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 139, 149 (2000).

If the court does not grant a motion for judgment as a matter of law pursuant to Rule

50(a), a party may file a renewed motion for judgment as a matter of law after the trial.

Fed. R. Civ. P. 50(b). It is well-settled that the standard for judgment as a matter of law

is the same as the standard for summary judgment. Reeves, 530 U.S. at 150 (citing

Anderson v. Liberty Lobby, Inc., 447 U.S. 242, 250-52 (1986)).

Summary judgment is appropriate where “there 1s no genuine issue as to any

material fact” and “the moving party is entitled to a judgment as a matter of law.” Fed.

R. Civ. P. 56(c). The moving party has the initial burden of identifying relevant portions

of the record that demonstrate the absence of a fact or facts necessary for one or more

essential elements of each cause of action upon which the moving party seeks judgment.

See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

If the moving party has sustained its burden, the nonmoving party must then

identify specific facts, drawn from materials on file, that demonstrate that there is a

dispute as to material facts on the elements that the moving party has contested. See Fed.

R. Civ. P. 56(c). The nonmoving party must not simply rely on the pleadings and must

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

do more than make “conclusory allegations [in] an affidavit.” Lujan v. Nat’] Wildlife

Fed’n, 497 U.S. 871, 888 (1990): see also Celotex Corp., 477 U.S. at 324. Summary

judgment must be granted for the moving party if the nonmoving party “fails to make a

showing sufficient to establish the existence of an element essential to that party’s case,

and on which that party will bear the burden of proof at trial.” Id. at 322; see also

Abromson v. Am. Pac. Corp., 114 F.3d 898, 902 (9" Cir. 1997).

In light of the facts presented by the nonmoving party, along with any undisputed

facts, the Court must decide whether the moving party is entitled to judgment as a matter

of law. See T.W. Elec. Serv.. Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 631 &

n.3 (9* Cir. 1987). When deciding a motion for summary judgment, “the inferences to be

drawn from the underlying facts . . . must be viewed in the light most favorable to the

party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.

574, 587 (1986) (citation omitted); Valley Natl Bank of Anz. v. A.E. Rouse & Co., 121

F.3d 1332, 1335 (9" Cir. 1997); see also Berry v. Bunnell, 39 F.3d 1056, 1057 (9th Cir.

1994) (articulating the same standard in the context of a directed verdict). Summary

judgment for the moving party is proper when a rational trier of fact would not be able to

find for the nonmoving party on the claims at issue. See Matsushita, 475 U.S. at 587.

In a motion for summary judgment, a court must review the record “taken as a

whole.” Matsushita, 475 U.S. at 587. Similarly, in entertaining a motion for judgment as

a matter of law, the court should review all of the evidence in the record. Reeves, 530

U.S. at 150. In so doing, however, the court must draw all reasonable inferences 1n favor

of the nonmoving party, and it may not make credibility determinations or weigh the

evidence. Id. (citations omitted); see also Berry, 39 F.3d at 1057. “Credibility

determinations, the weighing of the evidence, and the drawing of legitimate inferences

from the facts are jury functions, not those of a judge.” Anderson, 447 U.S. at 255.

Thus, although the court should review the record as a whole, it must disregard all

evidence favorable to the moving party that the jury is not required to believe. Reeves,

530 US. at 151 (citing 9A C. Wright & A. Miller, Federal Practice and Procedure §

2529 at 299 (2d ed. 1995)). In other words, the court should give credence to the

evidence favoring the nonmovant as well as that “evidence supporting the moving party

that is uncontradicted and unimpeached, at least to the extent that that evidence comes

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

from disinterested witnesses.” Reeves, 530 U.S. at 151 (citing Wright & Miller, supra, at

300).

B. New Trial

Federal Rule of Civil Procedure 59 provides that a court may, after a jury trial,

“srant a new trial on all or some of the issues-and to any party.” Fed.R.Civ.P.

59(a)(1)(A). A district court “may grant a new trial only if the verdict is against the clear

weight of the evidence, and may not grant it simply because the court would have arrived

at a different verdict.” Pavao v. Pagay, 307 F.3d 915, 918 (9th Cir.2002). Generally,

“Tcjourts do not grant new trials unless it is reasonably clear that prejudicial error has

crept into the record or that substantial justice has not been done, and the burden of

showing harmful error rests on the party seeking the new trial.” 11 Wnght & Miller, et

al., Federal Practice & Procedure § 2803 (3d ed.2015). A court should, however, grant a

new trial where necessary “to prevent a miscarriage of justice.” Molski v. M_J. Cable,

Inc., 481 F.3d 724, 729 (9th Cir.2007).

A trial court's decision whether to grant a new trial is reviewed for abuse of

discretion. Pavao, 307 F.3d at 918. The Ninth Circuit may reverse the denial of such a

motion only “if the record contains no evidence in support of the verdict” or the court

“has made a mistake of law.” Molski, 481 F.3d at 729 (internal quotation marks and

citations omitted).

C. Prejudgment Interest and Costs

The Court determines whether to award prejudgment interest in a diversity case

pursuant to California law. Mutuelles Unies v. Kroll & Linstrom, 957 F.2d 707, 714 (9th

Cir. 1992) (holding that state law governs the award of prejudgment interest in cases

based on diversity jurisdiction). California Civil Code section 3287 establishes when

parties are entitled to preyudgment interest. Pursuant to section 3287(a), prejudgment

interest is mandatory where damages are “certain, or capable of being made certain by

calculation.” Cal. Civ. Code § 3287(a). This is the case when ““‘there is essentially no

dispute between the parties concerning the basis of computation of damages if any are

recoverable but where their dispute centers on the issue of liability giving rise to

damage.’” Diaz v. Kubler Corp., 785 F.3d 1326, 1329 (9th Cir. 2015) (quoting Leff v.

Gunter, 33 Cal. 3d 508, 519 (1983)). Alternatively, discretionary prejudgment interest is

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

available pursuant to section 3287(b) “on unliquidated claims—claims where ‘the exact

amount of damage is in dispute.”” Workplace Techs. Rsch., Inc. v. Project Mgmt. Inst.,

Inc., 664 F. Supp. 3d 1142, 1155 (S.D. Cal. 2023), appeal dismissed, No. 23-55394, 2023

WL 11226984 (9th Cir. Oct. 3, 2023) (citing A& M Produce Co. v. FMC Corp., 186 Cal.

Reptr. 114, 128 (1982)).

Federal Rule of Civil Procedure (“Rule”) 54(d)(1) provides that “costs—other than

attorney's fees—should be allowed to the prevailing party.” Fed. R. Civ. Proc. 54(d)(1).

Courts have discretion to award costs pursuant to Rule 54(d). Alflex Corp. v.

Underwriters Labs., Inc., 914 F.2d 175, 176 (9th Cir. 1990).

Iii. DISCUSSION

A. Axis’s Renewed Motion for Judgment as a Matter of Law

Axis argues it is entitled to judgment as a matter of law pursuant to Rule 50(b) on

Rhythm’s claims for breach of contract, breach of the implied covenant of good faith and

fair dealing, and breach of the implied duty to perform with reasonable care. Dkt. 221 at

1. Axis contends that “judgment as a matter of law should be granted to dismiss

Rhythm’s claim for breach of contract because there was a complete ‘absence of

probative facts’ to show any damages that were recoverable under a breach of contract

action.” Id. at 3 (quoting Eich v. Board of Regents for Central Missouri State Univ., 350

F.3d 752, 761 (8th Cir. 2003)). Axis argues that Rhythm’s only demand for recovery was

actually one for recission, because it sought to be restored to the position it would have

been in had it not entered into the contracts, and that the only evidence it offered

supported restitution because it demonstrated the amount paid under the contracts. Id.

Axis argues that neither recission nor restitution is permissible as a remedy for breach of

contract under California law, as “the only proper measure of damages for a breach of

contract claim is the amount necessary to restore the injured party to the position they

[would] have held if there had been no breach.” Id. at 3-4 (citing Postal Instant Press v.

Sealy, 43 Cal_App.4th 1704, 1709 (1996) (internal citations omitted)).

Axis also argues that this limitation on damages is reflected in CACI No. 35,

instructing “the jury to determine the amount necessary to ‘to put [plaintiff] in as good a

position as [it] would have been if [defendant] had performed as promised.’” Id. at 4.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

Axis notes that this instruction was given at the first trial, but was not given at the second

trial over its objection. Id. at n.1.

Axis argues that a claim for recission is only proper if a party “elects to disaffirm

the contract, rather than seeking damages for breach,” id. at 4 (citing Wong v. Stoler, 237

Cal. App. 4th 1375, 1384 (2015)), and that a certain statutory procedure must be

followed, id. Similarly, Axis argues, Rhythm cannot make a claim for restitution because

this is a claim which “lies only in equity at the discretion of the court to prevent injustice”

and does not apply where parties have an express contract. Id. at 5 (citing California

Medical Assn. v. Aetna U.S. Healthcare of California, Inc., 94 Cal.App.4th 151, 172

(2001)). Axis argues that Rhythm’s only damages are based on improper demands for

restitution and recission and that because there was no evidence of proper damages,

judgment as a matter of law should be granted. Id. at 5-6.

Next, Axis argues that it is entitled to judgment as a matter of law on Rhythm’s

remaining claims for the same reasons it 1s entitled to judgment as a matter of law on the

breach of contract claim. Id. at 7. Claims for breach of the covenant of good faith and

fair dealing, Axis contends, are limited to the recovery of the same damages as in a

breach of contract claim. Id. (citing Cates Constr., Inc. v. Talbot Partners, 21 Cal. 4th 28,

42 (1999)). Axis argues that, additionally, claims for breach of implied duty to perform

with reasonable care are predicated on breach of the underlying contracts. Id. (citing

Holguin v. Dish Network LLC, 229 Cal.App.4th 1310 (2014)). Therefore, Axis argues,

these claims also fail. Id.

Axis also argues that judgment should be entered on Rhythm’s other counterclaims

because the jury awarded $0 in damages, despite a finding of liability for breach of the

implied covenant of good faith and fair dealing and for breach of the implied duty of

reasonable care on both the GO-ID and Basket contracts. Id.at 7. Axis refers to the jury

instructions, requiring for both the breach of implied covenant claims and the breach of

implied duty to perform with reasonable care claims that “‘Rhythm was harmed by

conduct,’” id. at 7-8, arguing that “[t]he jury’s express written finding that

Rhythm suffered ‘zero’ damage from both claims contradicts this essential element

render|ing] the finding of liability void,” id. at 8. According to Axis, “findings of zero

damages indicate that the jury’s verdict is fundamentally inconsistent” pursuant to

California law and the opinions of federal courts. Id.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

Axis argues that judgment should be entered on the counterclaims for breach of the

implied covenant of good faith and fair dealing because it is not permitted by California

law on the facts of this case, and thus fails as a matter of law. Id. at 9. The California

Supreme Court, Axis contends, has determined that outside of the insurance context,

recovery on this claim is impermissible “unless it is predicated upon the tortious violation

of an independent duty arising from principals of tort law that is not based on a breach of

contractual obligations.” Id. (citing Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal. 4th

85, 102 (1995)). Axis argues that such an independent breach is not present here and

therefore this claim cannot be brought in tort. Id. The claim is also not properly brought

in contract, Axis argues because it “states only the same breaches and damages as a

breach of contract claim,” which does not make out an independent claim according to

state and federal courts that have considered the issue. Id.

Finally, Axis argues that in the alternative, the Court should vacate the damages

award for Rhythm’s breach of contract claim pursuant to Rule 59(a)(1). Id. at 10. If the

Court “concludes that the evidence did not support a specific damage award,” Axis

argues, “the [C]ourt may vacate that award without granting a new trial as long as the

arguments in support of the award did not ‘spillover’ and affect the jury’s verdict on

other issues.” Id. at 11 (citing Max Rack, Inc. v. Core Health & Fitness, LLC, 40 F.4th

454, 470-71 (6th Cir. 2022)). Axis argues that there was no evidence to support the

jury’s award of damages on Rhythm’s counterclaim. Id.

In opposition, Rhythm argues that Axis’s “Rule 50(b) Motion rests on a clear

misstatement of the law: that restitution as a measure of damages is the same as the

equitable remedy called restitution.” Dkt. 223 (“Opp.”) at 2. Rhythm argues that it has

throughout the litigation sought restitution as a measure of damages, supported by the

Court’s November 13, 2023 Order denying Axis’s motion for judgment as a matter of

law following the first trial in this matter and concluding that ““Rhythm has presented a

consistent theory of damages throughout the case, which 1s that restitution, or a refund, is

the best measurement of the damages that Rhythm suffered as a result of Axis’s alleged

breach of contract.’” Id. (quoting dkt. 140 at 10). Rhythm contests that Axis’s reliance

on CACI No. 350 is correct because it argues Axis failed to excerpt the entire relevant

portion, leaving out that the purpose of contract damages 1s to return the party to the

position they would have been in had the other party performed, and arguing that Rhythm

sought a refund for this purpose. Id. at 2-3. Rhythm argues that it also does not seek

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

recission nor does it seek restitution or unjust enrichment because “it has an adequate

remedy at law: a breach of contract claim and contract damages.” Id. at 3. Restitution

can be a proper measure of damages, Rhythm argues, even if an equitable claim for

restitution is not brought. Id.

Rhythm next argues that Axis is not entitled to judgment as a matter of law on

Rhythm’s breach of implied covenant and breach of duty counterclaims. Id. at 4.

Rhythm contends that “[a]n award of $0 damages does not per se negate a jury’s finding

of harm.” Id. at 5 (citing Nat’l Life Ins. Co. v. Saks, 630 F. App’x 703, 704 (9th Cir.

2015); OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp., 157 Cal.

App. 4th 835, 882 (2007)). Rhythm argues that “there was significant evidence that Axis

failed to ensure patient safety, safeguard data integrity, and complete all of its required

tasks under the contracts—all of which caused harm to Rhythm,” in that they resulted in

Rhythm’s inability to use Axis data in its FDA submission. Id. at 5-6.

Rhythm also contends that Axis’s arguments do not withstand the Rule 59 standard

for a new trial because the moving party must “establish an irreconcilable inconsistency.”

Id. at 6 (citing Fahimian v. BMW of N. Am., LLC, No. CV 19-3587-KS, 2022 WL

1633646, at *4 (C.D. Cal. Jan. 26, 2022) (quoting White v. Ford Motor Co., 312 F.3d

998, 1038 (9th Cir. 2002) (internal quotation marks omitted)). A finding of zero damages

is not inconsistent with a finding of breach, Rhythm argues, nor is there evidence that

“the jury intended to find in favor of Axis on Rhythm’s alternative claims by finding for

Rhythm on those claims and then awarding zero damages.” Id. Rather, the Court is

required to “harmonize a jury’s inconsistent answers if a fair reading allows for it,” and

here, Rhythm argues, such a reading should lead the Court to conclude that these

breaches did not cause additional harm beyond the breach of contract harm. Id. (citing

Fahimian, 2022 WL 1633646 at *4 (quoting Floyd v. Laws, 929 F.2d 1390, 1396 (9th

Cir. 1991) (internal quotations omitted)).

Rhythm asserts that Axis fails to meet its burden on its argument that Rhythm’s

claim for breach of the implied covenant of good faith and fair dealing is impermissible

under California law. Id. at 7. Rhythm argues that the Court has previously concluded

that such claims are valid under California law. Id. (citing Opp. Exh. F at 205:5—25,

206:15—17, 206:22—24).

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

Rhythm argues that the Court should reject Axis’s alternative argument that there

was a lack of evidence to support Rhythm’s damages because the “|f]or the Court to

reconsider the weight or credibility of the evidence would be anathema to the nature of

the jury system and the Rule 50(b) standard.” Id. at 8. The evidence presented, Rhythm

argues, “was voluminous and undisputed,” including Rhythm’s Chief Financial Officer

Hunter Smith’s testimony about payments Rhythm made and Amber Davidheiser’s

testimony about the payments Axis received. Id. at 8-9.

In reply, Axis first argues that Rhythm has presented no argument or authority to

contradict Axis’s showing that it is entitled to a directed verdict on the breach of contract

claims, contending that Rhythm concedes that it sought a refund, that this is a proper

remedy in a contract claim for recission and an equitable claim for unjust enrichment, and

that the only proper award is one that gives Rhythm the benefit of its bargain. Dkt. 228 at

2-3. Axis argues that “Rhythm is thus forced by these concessions into playing a

semantic shell game with the words ‘refund,’ ‘restitution,’ and ‘damages’ to argue that,

while an award returning the amounts paid under the contract would be admittedly

improper, a ‘refund’ of damages equal to the amounts paid is somehow different and

entirely proper.” Id. at 3. Axis argues that none of the cases on which Rhythm relies

supports this view and that Rhythm fails to address why the authority Axis cited in its

motion does not control. Id. at 3, 6. Axis contends that this failure to address the

authorities cited “may be assumed to be conceding to that authority.” Id. at 6.

Next, Axis argues that Rhythm has failed to present argument or authority

contradicting Axis’s argument that it is entitled to a directed verdict on the breach of

covenant and breach of duty claims because zero damages were awarded. Id. at 7. Axis

contends that Rhythm’s opposition pertaining to the “evidence that it claims the jury

‘could have’ relied on to find and award damages under these claims” is irrelevant, and

that what matters is what the jury did do: “find that Rhythm suffered no compensable

harm under either of these claims.” Id. Axis argues that without compensable harm,

Rhythm did not carry its burden of proving these claims to the jury. Id. Axis refers to

authority it cited in its motion that Rhythm did not address in opposition and argues that

the authority to which Rhythm does cite is inapposite. Id. at 7-8.

Finally, Axis argues that Rhythm has failed to contradict Axis’s showing that it is

entitled to a directed verdict on the breach of covenant and breach of good faith and fair

dealing claims because they are duplicative. Id. at 9. Axis argues that Rhythm has not

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

distinguished the relevant authorities and that the case on which it relies is inapplicable

here. Id. at 9-10.

The Court first notes that in the pretrial conference order, Rhythm set forth its

theory that it “ha[d] suffered more than $5 million in damages as a result” of Axis’s

breach, dkt. 171 at 9, and at no point in the order did Rhythm mention that it sought

recission, see generally, id. Given that in the pretrial conference order Rhythm made

clear that it sought damages rather than recission, the Court as a threshold matter finds

that Axis is at this stage not entitled to argue that Rhythm’s claim was actually one for

recission.

The Court concludes that Rhythm’s theory of damages, that a refund of amounts

paid to Axis 1s the best measure of the damages it suffered, is not a claim for equitable

restitution. Rhythm has maintained this theory throughout the course of this litigation

and the Court has previously found it is proper. Dkt. 140 at 10. The Court has also

previously determined that Rhythm’s claim for breach of the implied covenant of good

faith and fair dealing is permissible pursuant to California law and that the alternative

claims are not impermissibly duplicative of the breach of contract claim. Opp. Exh. F,

206:15-17. As a result, these claims were included on the jury’s verdict form. Dkt. 218.

The Court does not agree with Axis that a finding of zero damages for breach of

the implied covenant of good faith and fair dealing and for breach of the implied duty of

reasonable care renders the jury’s finding of liability void. California law permits a

finding of breach of contract accompanied by an award of zero damages. Nat’] Life Ins.

Co. v. Saks, 630 F. App’x 703, 704 (9th Cir. 2015) (citing Sapp v. Barenfeld, 34 Cal.2d

515, 524 (1949)). In this case, the jury found breach of contract, and damages, merely

finding zero damages on Rhythm’s alternative claims of breach of implied covenants and

duties. At trial, the jury was instructed, “|i]f you find for Rhythm on any of its alternative

claims, you must also determine the amount of Rhythm’s damages for that claim.

However, please know that Rhythm can only recover its damages once, even if you

award its full claimed damages multiple times.” Dkt. 213 at 36-37. The jury could have

determined, pursuant to this instruction, that if it awarded damages on the breach of

contract claim, it need not award duplicative damages on the alternative claims. The

United State Court of Appeals for the Ninth Circuit has made clear that “[i}]n an

inconsistent verdict case, a court asks, not whether the verdict necessarily makes sense

under any reading, but whether it can be read in light of the evidence to make sense.”

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

White v. Ford Motor Co., 312 F.3d 998, 1005 (9th Cir. 2002). The Court finds that in

light of the evidence presented in this case and the instructions provided to the jury, a

finding of liability on the alternative claim accompanied by findings of zero damages are

consistent with the damage awards.

The Court addresses the sufficiency of evidence for the damage award below, in

conjunction with arguments made for a new trial on this basis.

Accordingly, the Court DENIES Axis’s motion for judgment as a matter of law.

B. —Axis’s Motion for New Trial

Axis argues that a new trial must be ordered because the jury reached an improper

compromise verdict. Dkt. 222 at 2. Axis concedes that an insufficient damages verdict

alone does not necessarily indicate a compromise verdict. Id, (citations omitted). Axis

argues that the Court must look to the totality of the circumstances and “consider any

indicia of compromise apparent from the record and any factors that may have caused a

verdict for damages that would be inadequate if the jury actually found liability.”” Id.

(quoting Yarbrough v. Sturm, Ruger & Co., 964 F.2d 376, 379 (Sth Cir. 1992)). Axis

argues that in this case, the award of one-half of clazmed damages on Rhythm’s breach of

contract claim, “coupled with the contested liability and jury confusion resulting in two

questions about calculation of damages is compelling evidence of jury compromise,” and

thus requires a new trial. Id. at 3. Axis argues that Judge Carter recently granted a new

trial under what are claimed to be similar circumstances. Id. (citing Holloway v. Orange

Cnty., No. CV 8:19-01514 DOC DFMX, 2024 WL 1816943, at *4 (C.D. Cal. Mar. 18,

2024)).

Axis argues that even if there were another explanation for the jury’s award, it

remains inconsistent with the evidence and impermissible by law. Id. at 3-4. Rhythm,

Axis contends, did not introduce any evidence of the value it received under the GO-ID

contracts, so the jury had no evidence on which to conclude that a one-half refund was

warranted, and such a conclusion is precluded by law because “[a] jury cannot award

one-half of a refund as damages on a contract claim.” Id. at 4. Axis argues that a one-

half refund would also be improper under a recission claim, and that such an award is

only permissible on an equitable claim for restitution, which is not possible when the

award is decided by a jury rather than the court and where parties have a written contract.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

Id. at 5. Based on these factors, Axis argues, the verdict is invalid, and a new trial is

warranted. Id. at 6.

Next Axis argues that a new trial must be ordered because the verdict

impermissibly imposes joint and several liability on unrelated parties with separate

contracts. Id. Axis argues that though it brought its original claims via an assignment of

rights, each counterclaim defendant was individually named in the First Amended

Counterclaim, each appeared and answered individually, and Rhythm did not argue that

counterclaim defendants were co-obligor’s on one another’s contracts nor did it present

evidence of the amount paid to each counterclaim defendant. Id. Axis argues that

because the jury was not asked to determine damages owed by each counterclaim

defendant, there is no way to properly divide the damages award among them. Id. at 7.

This, Axis argues, is an additional basis for granting a new trial. Id.

In opposition, Rhythm first argues that the jury’s verdict did not reflect an

improper compromise, rather it “was a complete victory for Rhythm.” Id. at 9. Rhythm

argues that Axis’s “own self-serving interpretation of an adverse verdict is insufficient to

meet its burden on a new trial motion” and that the trial evidence did support the jury’s

damages award. Id. at 10. Rhythm cites evidence presented on the payment schedule

followed for the GO-ID contracts, arguing that “[t]he jury’s award of half of Rhythm’s

claimed damages on the GO-ID contracts is consistent with the GO-ID payment

schedule.” Id. Rhythm also argues that Axis’s theory of the case relied on proving its

part performance under the contracts. Id. at 10-11. According to Rhythm, the Court

noted at that time that the jury could have permissibly found that a partial damages award

was appropriate. Id. at 11 (citing Opp. Exh. N at 11:25-12:3). Additionally, at trial,

Rhythm argues, Axis agreed to respond to the two jury questions about awarding

damages stating that the jury could award less than the full amount requested so long as

the award was based on the jury’s consideration of all of the evidence. Id. at 11-12.

Rhythm also contests Axis’s claim that a partial damages award is improper by

law. Id. at 12. The jury’s determination that one-half of the damages requested would

“restor[e] Rhythm to the benefit of its bargain,” Rhythm argues, “does not convert

Rhythm’s claims into an equitable claim for restitution.” Id.

Next, Rhythm argues that the verdict form was not required to allocate damages

for each individual contract. Id. Rhythm argues that it presented evidence which

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

demonstrated how much it paid to each entity and that the Court previously rejected the

need to determine damages on each contract separately on the verdict form. Id. at 12-13

(citing Opp. Exh. O at 8:10-10:15). Rhythm argues that “both parties have proceeded

under the theory that the contracts were substantively identical,” and the jury instructions

referred to the entities collectively, thus “Axis cannot reverse course on its own

presentation of its case and defense to now require separate allocation.” Id. at 13-14.

Finally, Rhythm argues that “[e|ven if [] a verdict form [allocating damages on each

contract] would not have contradicted the evidence as both parties presented it, Axis fails

to demonstrate the necessary prejudice to justify a new trial.” Id. at 14.

In reply, Axis first argues that Rhythm’s argument that the jury did not reach an

improper compromise verdict contradicts its argument that the award of refund damages

is proper. Dkt. 229 at 2. Axis asserts that Rhythm “ultimately disproves its own claim”

because if the damages it claims are not a refund, there was no evidence to support them,

and if they are a refund, they are an impermissible partial refund. Id. Axis contends that

because CACTI Instruction No. 350 was not given, the jury could not have known how

properly to compute contract damages. Id. According to Axis, the failure to include

CACI No. 350 is further evidence that the jury verdict was a compromise verdict. Id.

Axis reiterates its argument made in its motion pertaining to compromise verdicts and

argues a new trial must be ordered. Id. at 3.

Axis next restates the argument made in its motion that a new trial must be granted

because there is no basis for the allocation of the damage award between counterclaim

defendants. Id. at 3-4. Axis argues that the damages allocations cannot be easily gleaned

from the evidence presented as Rhythm contends in its Opposition, and that even if the

Court were to calculate the relevant amounts, it would have to make assumptions about

the way the jury arrived at its one-half damages award. Id. at 4-5. Thus, Axis asserts,

only resolution is to order a new trial.” Id. at 5.

The Court finds that these circumstances do not merit a conclusion that the jury

reached an impermissible compromise verdict, warranting a new trial. “‘[A]|n insufficient

damages verdict, standing alone, does not necessarily indicate a compromise.” Saunders

v. Carlisle Memory Prod. Grp., Inc., 24 F.3d 249, 2 (9th Cir. 1994) (quoting Mekdeci v.

Merrell Nat'l Labs., 711 F.2d 1510, 1513 (11th Cir.1983)). Indeed, a jury verdict will be

accepted if it could reasonably have been reached. Raynor Bros. v. American Cyanimid

Co., 695 F.2d 382, 385 (9th Cir. 1982) (finding that an award of approximately half of

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

plaintiff's requested damages could have been rationally reached in light of the evidence

developed during cross-examination challenging plaintiff's damages calculation). In this

case, the jury’s award of approximately one-half of Rhythm’s requested damages on the

GO-ID contracts is supported by evidence presented at trial, including payments

apportioned and timed according to performance benchmarks for Axis to meet under the

GO-ID contracts, as well as Axis’s evidence of its own performance under the contracts.

Axis’s argument that failure to include CACI No. 350 is belied by the fact that the Court

gave Instruction No. 31, “[i]f you decide that Rhythm has proved any of its claims

against Axis, you must decide how much money will reasonably compensate it for the

harm caused by the breach,” dkt. 213 at 34, and in light of the evidence presented, the

jury’s verdict was reasonable. The Court concludes, therefore that the jury’s damages

award was not an impermissible compromise verdict.

The Court finds that Axis’s reliance on Holloway is misplaced. There, the Court

determined that a jury determination that officers had used excessive force accompanied

by an award of zero damages was inconsistent, warranting a new trial because “[t]he

jury’s finding that a punch to the face and several knees to the head caused [p]laintiff no

compensable ‘pain and suffering’ [was] patently unsupportable.” Holloway, 2024 WL

1816943 at *8. Here, the jury’s determination that Axis had breached its contract with

Rhythm, but that the breach did not merit an award of full requested damages, was

consistent with the parties’ presented theories of the case and the evidence, unlike the

finding of use of excessive force accompanied by an award of zero damages in Holloway.

The Court also concludes that the jury’s award of less than Rhythm’s total claimed

damages is not grounds for a new trial. Generally, “a jury's award of damages is entitled

to great deference, and should be upheld unless it is ‘clearly not supported by the

evidence’ or ‘only based on speculation or guesswork.’” In re First All. Mortg. Co., 471

F.3d 977, 1001 (9th Cir. 2006) (quoting Los Angeles Memorial Coliseum Comm'n v.

National Football League, 791 F.2d 1356, 1360(9th Cir.1986) (citations omitted)). It is

well established that juries can award damages of less than the amount requested by the

parties. See, e.g., Am. Nat. Bank & Tr. Co. of Chicago v. Reg'l Transp. Auth., 125 F.3d

420, 437 (7th Cir. 1997) (affirming the award of nearly half a million less than the party’s

calculated damages because the jury could have concluded that though the project at

issue was “very likely to occur, it was not a certainty”); Cal-Agrex, Inc. v. Tassell, 258

F.R.D. 340, 349-350 (N.D. Cal. 2009), aff'd, 408 F. App'x 58 (9th Cir. 2011) (affirming

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

the award of nearly two million dollars more than the expert’s highest damages

assessment because “the jury was presented with substantial evidence related to the

damages calculation, including multiple different scenarios for recovery and varying

assumptions by the damages experts,” thus the court could not conclude the award was

“was either unreasonable or unsupported by substantial evidence.”); Holmes v. Harris,

No. CV 18-3739 PSG EX, 2019 WL 12070347, at *3 (C.D. Cal. Oct. 4, 2019), aff'd, 845

F. App'x 604 (9th Cir. 2021) (affirming a damage award higher than defendant’s expert

assessed because jurors are permitted to make their own reasonable damages assessment

based on the evidence); Goyal v. Thermage, Inc., No. CIV. WDQ-08-0020, 2012 WL

3240381, at *17 (D. Md. Aug. 2, 2012) (affirming the award of approximately half of

damages sought because the jury may have discredited both parties’ positions and

independently determined that an award of about half of requested damages was

reasonable).

Here, parties agreed at trial that the jury could determine a damages award that

was less than the amount requested. In response to the jury’s questions asking first, “[i]n

finding for one of the parties in the breach of contract, do we have to pay the ‘full’

amounts requested or can we give a different amount that is less?” dkt. 207, and second,

“af we wish to choose our own number . . . [for damages] can we do so?” dkt. 208, the

parties agreed to say “no, please see the jury instructions,” dkt. 207, and “yes, but it must

be based on your consideration of all of the evidence,” dkt. 208. Thus, as an initial

matter, the parties agreed during the trial that a lesser damage award was not precluded as

a matter of law, contrary to what Axis argues in the instant motion.

The Court finds that an award of damages less than the total amount claimed is

consistent with the arguments and evidence at trial and with the law. Rhythm’s theory

throughout this case has been a failure of consideration, a claim that it did not receive

value in exchange for its contract payments to Axis. While a complete failure of

consideration 1s grounds for recission of the contract, a partial failure of consideration by

one party does not excuse the performance of the party asserting this defense. U.S. v.

Schaeffer, 319 F.2d 907, 911 (9th Cir. 1963). Rather, a partial failure of performance, “‘is

merely ground for abatement of damages unless it goes to the root of the contract.” Id.:

Nelson v. Jones, No. CV 01-00182 KSC, 2007 WL 9711020, at *12 (D. Haw. Aug. 31,

2007), aff'd, 312 F. App'x 936 (9th Cir. 2009) (finding that “‘[w]here a partial failure of

consideration has occurred, the proper remedy is to grant appropriate damages to the non-

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

breaching party.””’) (quoting Check Control, Inc. v. Shepard, 462 N.W. 2d 644, 647 (N_D.

1990)). Though a claim for recission under California law is governed by California

Civil Code Section 1689, “the meaning of failure of consideration, as provided for in that

section, has been applied, under the rule announced in Richter v. Union Land etc. Co.,

129 Cal. 367, 62 P. 39, to cases not founded upon the exercise of the night of rescission.”

Taliaferro v. Davis, 31 Cal. Rptr. 164, 172 (1963): see also Bliss v. California

Cooperative Producers, 181 P.2d 369, 374 (1947) (holding that failure of consideration is

a defense to an action for breach of a bilateral contract).

At no time did Rhythm explicitly argue that the failure of performance went to the

basis of the contract, nor did it state a claim for recission. Rather, Rhythm claimed and

present evidence of failure of consideration as a defense to Axis’s claim of breach. Axis,

for its part, presented evidence that it had performed. Thus, the jury could have properly

found damages amounting to less than a complete refund were owed to Rhythm, because

it had made contract payments for which it only recouped partial value in the form of

partial performance. The Court concludes that the jury could permissibly have found that

an award of one-half of Rhythm’s claimed damages was supported by the evidence.

Finally, the Court finds that the fact that the awarded damages were in the form of

one damage number, rather than broken out for each contract, does not provide grounds

for a new trial. The Court rejected Axis’s argument at the pretrial conference, held on

July 15, 2024, that each of the twelve claims needed to be set out individually on the

verdict form. Dkt. 225. The Court determined that there had not been evidence heard on

each company’s contract, nor did the pretrial conference order establish that the claims

for breach would be tried company-by-company. Id. 8:19-21 (explaining “T just don’t

think that you can go company by company, particularly because we haven’t had

evidence really on the other companies): 10:13-15 (noting that “[t]here’s nothing in the

pretrial conference order that says we’re going to try breach of contract on a location-by-

location basis.”). The Court reiterates its prior conclusion here. No reason has been

shown why this ruling should be revisited.

Accordingly, the Court DENIES Axis’s motion for a new trial.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

C. Rhythm’s Motion for Prejudgment Interest and Costs

Rhythm argues it is entitled to preyudgment interest on the damages awarded to it

at trial. Dkt. 220 at 1. It argues that under Rule 54(d), it is also presumptively entitled to

taxable costs. Id. (citing Save Our Valley v. Sound Transit, 335 F.3d 932, 944-45 (9th

Cir. 2003)). Rhythm claims that the Court should grant it statutory preyudgment interest

on the amount of damages it was awarded, $2,756,924.28 from, at latest, the date of filing

of its counterclaims, February 25, 2022. Id. It argues that without prejudgment interest,

it would not be fully compensated for the injury the damages awarded are meant to

address. Id. at 2 (quoting West Virginia v. United States, 479 U.S. 305, 311 n.2 (1987)).

Rhythm claims that “[i}n federal diversity actions, prejudgment interest 1s available

as it would be under the state law that governs the claim.” Id. (citing Inre Exxon Valdez,

484 F.3d 1098, 1101 (9th Cir. 2007)). Under California Civil Code Section 3287(b),

Rhythm argues, “a party that secures a judgment to receive damages based upon a

contract action can recover prejudgment interest on the damage award running from the

date the action was filed.” Id. Thus, Rhythm asserts, it is entitled to prejudgment interest

on its damages award from the date it filed its counterclaims, and this decision falls

within the Courts discretion.

Rhythm notes that under California law, awarding prejudgment interest is

mandatory when damages are certain or capable of being made certain, meaning “‘there

is essentially no dispute between the parties concerning the basis of computation of

damages if any are recoverable but where their dispute centers on the issue of liability

giving rise to damage,’” pursuant to California Civil Code Section 3287(a). Id. (citing

Diaz, 785 F.3d at 1329 (internal citations omitted)). Rhythm argues that this is such a

case because the computation of Rhythm’s damages “has never been disputed:

throughout, Rhythm sought a refund for amounts it paid Axis under the breached

contracts.” Id. at 3. To support this assertion, Rhythm cites to Axis witness Amber

Davidheiser’s testimony that Rhythm paid Axis $4,016,998.25 and to documentary

evidence demonstrating that payments for the GO-ID study totaled $4,019,007.05, which

Rhythm describes as “an almost identical number.” Id. For the Basket contracts,

Rhythm contends, Davidheiser testified that Rhythm paid Axis $847,551.19 and

documents show “a very similar figure” of $747,420.75. Id. Accordingly, Rhythm

argues that because “the jury saw fit to award Rhythm exactly 50% of what it paid for

Go-ID and 100% of what it paid for Basket—amounts that were essentially undisputed—

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

makes clear that Rhythm’s damages was certain—or at least capable of being made

certain by calculation—as of the date of Rhythm’s last payment to Axis—which was

September 17, 2021.” Id.

Rhythm argues that in the alternative, it is entitled to discretionary preyudgment

interest pursuant to Section 3287(b). Id. Rhythm contends that Section 3287(b)

authorizes the Court to award discretionary prejudgment interest from a date no earlier

than the action’s filing, but prior to the entry of judgment. Id. at 3-4. Rhythm argues that

there is no set list of factors for the Court to consider in exercise of its discretion, id. at 4

(citing Hewlett-Packard Co. v. Oracle Corp., 65 Cal. App. 5th 506, 577 (2021)), but that

courts weigh the reasonableness of such interest, “balancing ‘the concern for fairness to

the debtor against the concern for full compensation to the wronged party,’” id. (quoting

Lewis C. Nelson & Sons v. Clovis Unitied Sch. Dist., 90 Cal. App. 4th 64, 69 (2001)).

Rhythm contends that an examination of the relevant factors supports an award of

prejudgment interest to Rhythm primarily because of the time that elapsed between filing

of its counterclaims and the verdict as well as the fact that the jury determined Axis

breached the express terms of the contracts and the implied covenant of good faith and

fair dealing and the duty to perform the contracts with reasonable care. Id. Rhythm

requests this preyudgment interest at the ten percent statutory rate, calculating a total of

$728,461.41 in interest on the jury’s damage award. Id. at 5.

Next, Rhythm argues that the Court should grant it taxable costs pursuant to Rule

54(d). Id. Rhythm contends that Rule 54(d) governs in diversity cases and that “‘Rule

54(d)(1) creates a presumption in favor of awarding costs to a prevailing party.’” Id.

(citing Champion Produce, Inc. v. Ruby Robinson Co., 342 F.3d 1016, 1022 (9th Cir.

2003); Fed. R. Civ. P. 54(d)(1)). Rhythm argues that the Court has discretion to deny the

request for costs, but that such discretion is not unlimited. Id. at 6. Rather, Rhythm

argues, the Ninth Circuit has enumerated “a limited universe of appropriate reasons for

overcoming the Rule 54 presumption,” none of which applies here. Id. (citations

omitted).

In opposition, Axis first argues that prejudgment interest should not be awarded

because it would penalize Axis for litigating a bona fide dispute. Dkt. 224 at 2. Axis

contends that “[a] trial court’s decision about whether and when to award prejudgment

interest is to be guided by principles of equity.” Id. at 3. Axis cites Continental Oil Co.

v. US. for the proposition that interest 1s generally not permitted on unliquidated

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

damages unless in the court’s discretion it is necessary for fair compensation. Id. (citing

184 F.2d 802, 822 (9th Cir. 1950)). Axis also argues that the Court is required, pursuant

to Section 3287(b), “‘to balance the concern for fairness to the debtor against the concern

for full compensation to the wronged party.’” Id. (quoting Hewlett-Packard Co., 65 Cal.

App. 5th at 576). In conducting this balancing, Axis argues, the Court “must not award

prejudgment interest where it would ‘penalize’ a defendant for defending itself in a ‘bona

fide dispute.” Id. (citing Workplace Techs. Rsch., 664 F.Supp.3d at 1157-1158; A& M

Produce Co. v. FMC Corp., 135 Cal_App.3d 473, 496 (1982)).

Axis argues that two indicators of a bona fide dispute are “‘highly contested and

uncertain’” damages, id. (quoting Hewlett-Packard Co., 65 Cal. App. 5th at 577), anda

prior trial which reached a different result or in which there was a jury award

“substantially less than demanded,” id. at 3-4 (citing Fresno Rock Taco, LLC v. Nat'l Sur.

Ins. Corp., No. CV 1:11-845 SKO, 2015 WL 135720 at *28 (E_D. Cal. Jan. 8, 2015)).

Axis points to the jury award of one-half of Rhythm’s damages on the GO-ID contracts

and the fact that the original trial verdict was “heavily” in Axis’s favor to support the

contention that there was a bona fide dispute in this case.

Axis next argues that if the Court chooses to award prejudgment interests, it should

“not be assessed any sooner than August 25, 2023, which was the first time that

[Rhythm] demanded a refund of its contract payments as its contract damages.” Id. at 4.

Axis contends it cannot be responsible for paying interest prior to the time it became

possible for it to determine the amount of the claims against it. Id. at 5 (citing Union Pac.

RR. Co. v. Santa Fe Pac. Pipelines, Inc., 231 CA.4th 134, 203 (2014): Hewlett-Packard

Co., 65 Cal. App. Sth at 576). Axis argues that Rhythm did not reveal that its claimed

damages would be its contract payments until the Pretrial Conference hearing on August

21, 2023, and through its document production on August 25, 2023. Id. Axis quotes

extensively from its August 30, 2023, filing, wherein it described the asserted change in

Rhythm’s claimed damages. Id. at 6-8 (citing dkt. 86 § 4:10-8:7). Accordingly, Axis

argues that because the two witnesses Rhythm provided to testify as to damages “still did

not know what [those] damages were as late as August 30, 2023, if prejudgment interest

must be awarded, it is reasonable that it be awarded no sooner than August 25, 2023,

which was the earliest date at which Rhythm produced the documents from which its

damages would be calculated.” Id. at 8.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

In reply, Rhythm first argues that Axis concedes Rhythm is entitled to both

mandatory prejudgment interests and costs, based on Axis’s failure to oppose Rhythm’s

requests for mandatory prejudgment interest pursuant to Section 3287(a) and taxable

costs pursuant to Rule 54(d). Dkt. 227 at 1. Rhythm contends that lack of opposition

amounts to a waiver of the issue. Id. (citing Heraldez v. Bayview Loan Servicing, LLC,

No. CV 5:16-1978 R DTBx, 2016 WL 10834101, at *2 (C.D. Cal. Dec. 15, 2016), □□□□□□

719 F. App’x 663 (9th Cir. 2018): In re Stable Rd. Acquisition Corp. Sec. Litig., No. CV

2:21-5744 JFW SHKx, 2023 WL 11892194, at *3 (C.D. Cal. Nov. 14, 2023).

Next, Rhythm argues that Axis’s opposition to Rhythm’s alternative theory for

discretionary prejudgment interest fails on the merits. Id. at 2. The principles of equity,

upon which Axis relies to oppose discretionary prejudgment interest, Rhythm argues,

actually support such an award “because failure to award prejudgment interest ignores the

time-value of the unearned payments (amounting to millions of dollars) that Axis held for

more than two years from filing to verdict.” Id. at 3. Rhythm contests the applicability

of the caselaw on which Axis relies to make its equity argument, describing it as

“inapposite.” Id. Rhythm distinguishes Workplace Technologies on the basis that there

““the jury found [defendant] had also failed to perform certain obligations under both the

[contracts at issue].’” Id. (citing Workplace Techs. Rsch., 664 F. Supp. 3d at 1157-58).

Rhythm claims that Axis’s reliance on A & M Produce is also misguided, because there,

the trial court’s grant of prejudgment interest was affirmed and the court found that

without an award of prejudgment interest, the defendant would effectively have been

allowed to borrow large sums of money from the plaintiff interest free. Id. (citing A & M

Produce, 135 Cal. App. 3d at 496). Lastly, Rhythm argues that Fresno Rock Taco does

not apply, because there, mandatory prejudgment interest of the kind Rhythm requests

was granted, while only discretionary prejudgment interest was denied. Id. at 4 (citing

Fresno Rock Taco, LLC v. National Surety Insurance Corp., No. CV 1:11-845 SKO,

2015 WL 135720, at *28 (E.D. Cal. Jan. 9, 2015)).

Finally, Rhythm argues that “the appropriate date from which to measure damages

under Section 3287(a) is September 17, 2021: the date of Rhythm’s last payment to Axis,

and the date on which damages became reasonably calculable.” Id. Alternatively,

Rhythm argues, the Court should fix February 25, 2022, the date of Rhythm’s

counterclaim filing, as the date from which prejudgment interest runs. Id, Rhythm

contends Axis’s argument that Rhythm only revealed its claimed damages on August 21,

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

2023 and in document production on August 25, 2023 “is verifiably false.” Id. at 4-5.

Rhythm supports this argument with citation to the transcript of the Court’s hearing on

August 21, 2023, wherein the Court determined that the damages claim had ““been in the

case for a long period of time’” and that Axis should have been able to determine the

amount of money it was paid. Id. at 5 (citing August 23, 2023 Tr. at 33:22—34:1; 36:4-5).

Rhythm goes on to argue that it “has never hidden the ball” and that it has made clear

throughout the case the amounts it claimed it was owed. Id. at 5-6 (citing various filings

in which Rhythm described damages sought, dating back to February 25, 2022).

The Court finds that section 3287(a) is inapplicable in this case, as damages were

not liquidated.' In order to warrant mandatory prejudgment interest pursuant to section

3287(a), damages must be “certain or capable of being made certain by calculation.” Cal.

Civ. Code § 3287(a). This means that “there is essentially no dispute between the parties

concerning the basis of computation of damages if any are recoverable but where their

dispute centers on the issue of liability giving rise to damage.” Diaz, 785 F.3d at 1329

(quoting Leff, 33 Cal. 3d at 519). It is evident that in this case there was a dispute over

the computation of damages, giving rise to a jury award of less than Rhythm’s claimed

damages. Therefore, the Court concludes that mandatory prejudgment interest is not

properly awarded in this case.

The Court also concludes that discretionary prejudgment interest pursuant to

section 3287(b) is not proper in these circumstances. This section “seeks to balance the

concern for fairness to the debtor against the concern for full compensation to the

wronged party.” Lewis C. Nelson & Sons, 90 Cal. App. 4th at 69. Courts look at various

factors in determining whether discretionary prejudgment interest is appropriate,

including time between complaint and entry of judgment, offers to settle during the

litigation, A & M Produce, 135 Cal. App. 3d at 496-97, and whether the granting of

' At oral argument, counsel for Rhythm asked the Court to consider treating the Basket

contract as requiring payment of a liquidated amount. First, the argument that the

damages on the Basket contract should be treated differently was not raised in the

briefing and, in any event, appears to be without merit because the amounts were in fact

disputed. The question at trial was what the reasonable value of the services provided by

Axis was, thus by definition the damages could not be liquidated because the question of

value was at the center of the dispute.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-CV-01127-CAS (GJSx) Date September 16, 2024

Title ACTA, A MEMBER OF THE ALLIANCE, INC. V. RHYTHM

PHARMACEUTICALS, INC., ET AL

prejudgment interest would penalize the defendant for litigating a bona fide dispute,

Workplace Techs. Rsch., 664 F_Supp.3d at 1157 (citing Fresno Rock Taco, 2015 WL

135720 at *28). Rhythm’s First Amended Counterclaims were filed on April 14, 2022.

The Court finds that 29 months is not an unusually protracted duration for a case in this

district. Additionally, no settlement offer of the kind considered by the court in A & M

Produce was made during this litigation. The Court agrees with Axis that a bona fide

dispute, one that revolved around “‘highly contested and uncertain’ damages” was

present in this case. Hewlett-Packard Co., 65 Cal. App. 5th at 529.

The Court finds that an award of taxable costs to Rhythm pursuant to Rule 54(d) is

appropriate. Rule 54(d)(1) establishes that costs other than attorney’s fees shall be

awarded to the prevailing party, “unless . . . a court order provides otherwise directs.”

Fed. R. Civ. P. 54. The Court’s discretion to deny costs is limited, as, “[a] district court

must ‘specify reasons’ for its refusal to award costs.” Ass’n of Mexican-Am. Educators

v. State of California, 23] F.3d 572, 591 (9th Cir. 2000) (citing Subscription Television,

Inc. v. Southern Cal. Theatre Owners Ass'n, 576 F.2d 230, 234 (9th Cir.1978)). The

Court does not find any basis in this case to depart from the presumption that costs should

be awarded, and Axis makes no argument on the matter.

Accordingly, the Court DENIES Rhythm’s motion for preyudgment interest and

GRANTS Rhythm’s motion for taxable costs.

IV. CONCLUSION

In accordance with the foregoing, the Court DENIES Axis’s motion for judgment

as a matter of law, Axis’s motion for a new trial, and Rhythm’s motion for preyudgment

interest. The Court GRANTS Rhythm’s motion for an award of taxable costs.

IT IS SO ORDERED.

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