Den-Mat Holdings, LLC v. CAO Group, Inc.

CIVIL MINUTES – GENERAL ‘O’

Case No.  2:18-cv-06358-CAS(JEMx) Date  August 19, 2019

Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

Present: The Honorable  CHRISTINA A. SNYDER

Catherine Jeang    Laura Elias    N/A

Deputy Clerk    Court Reporter / Recorder    Tape No.

Attorneys Present for Plaintiffs:    Attorneys Present for Defendants:

Todd Tiberi   J. Christopher Jaczko

Nona Yegazarian Craig Hoggan

Ethan Brown  Nathan Kopp

Proceedings:   PLAINTIFF’S MOTION FOR PARTIAL SUMMARY

JUDGMENT (Dkt. [ 34 ], filed June 20, 2019)

DEFENDANT’S MOTION FOR PARTIAL SUMMARY

JUDGMENT (Dkt. [ 41 ], filed June 24, 2019)

I. INTRODUCTION

On July 23, 2018, plaintiff Den-Mat Holdings, LLC (“DenMat”) filed this action

for breach of contract against defendant CAO Group, Inc. (“CAO Group”). Dkt. 1

(“Compl.”). DenMat asserts two claims for relief: (1) breach of contract; and (2) unjust

enrichment. Id.

CAO Group filed its operative amended answer on August 28, 2018, asserting

seven counterclaims pursuant to California law: (1) Breach of the License Agreement; (2)

Breach of Implied Covenant of Good Faith and Fair Dealing – License Agreement; (3)

Breach of the Manufacturing Agreement; (4) Breach of Implied Covenant of Good Faith

and Fair Dealing – Manufacturing Agreement; (5) Rescission of the Manufacturing

Agreement; (6) Unjust Enrichment; and (7) Permanent Injunction. Dkt. 14

(“Countercl.”).

On June 20, 2019, DenMat filed a motion for partial summary judgment as to its

first claim for relief and as to each of CAO Group’s counterclaims, dkt. 34 (“D. Mot.”),

and a statement of undisputed material facts and conclusions of law, dkt. 36 (“DSUF”).

CAO Group filed an opposition on July 8, 2019, dkt. 55 (“C. Opp.”), and a statement of

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Case No.  2:18-cv-06358-CAS(JEMx) Date  August 19, 2019

Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

genuine disputed facts, dkt. 55-1 (“CGDF”). DenMat filed a reply on July 15, 2019.

Dkt. 62 (“D. Reply”).

On June 24, 2019, CAO Group filed a motion for partial summary judgment as to

both of DenMat’s claims for relief, dkt. 41 (“C. Mot.”), and a statement of undisputed

material facts and conclusions of law, dkt. 42 (“CSUF”). DenMat filed an opposition on

July 8, 2019, dkt. 46 (“D. Opp.”), and a statement of genuine disputed facts, dkt. 46-1

(“DGDF”). CAO Group filed a reply on July 15, 2019, dkt. 61 (“C. Reply”), and a reply

statement to DenMat’s statement of genuine disputed facts (“CRSDF”), dkt. 61-3.

The Court held a hearing on the parties’ cross motions for summary judgment on

August 19, 2019. Having carefully considered the parties’ arguments, the Court

concludes as follows.

II. BACKGROUND

This case arises out of a dispute between DenMat and CAO Group regarding

licensing and manufacturing contracts related to soft-tissue diode lasers used by dentists

and other dental professionals. Unless otherwise noted, the Court references only facts

that are uncontroverted and as to which evidentiary objections have been overruled.

A. The Parties

DenMat is a limited liability company with its principal place of business in

California. DSUF No. 8. It manufactures and sells dental equipment, including oral

hygiene products, oral cancer screening devices, and dental lasers, to dentists and

hygienists located in the United States, the European Union, and elsewhere. Id. Nos. 9–

10. David Casper (“Casper”) serves as the company’s Chief Executive Officer. Dkt. 37,

Declaration of David Casper (“Casper Decl. I.”) ¶ 1.

CAO Group is a Utah corporation that has manufactured and sold products,

including dental lasers, for more than 15 years. DSUF No. 1; Dkt 41-3 at 2. It has

manufactured lasers for other large dental companies and produces 3,000 lasers per year.

DSUF Nos. 1–2. Densen Cao, Ph.D. (“Dr. Cao”) serves as CAO Group’s President. Id.

No. 4. This case arises out of previous litigation in which CAO Group alleged that

DenMat’s products infringe several of CAO Group’s patents.

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Case No.  2:18-cv-06358-CAS(JEMx) Date  August 19, 2019

Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

B. CAO Group’s Previous Patent Infringement Suit Against DenMat

In 2015, CAO Group brought suit against DenMat alleging that DenMat’s SOL®

and NV®Pro3 dental lasers and laser tips infringed several of CAO Group’s patents.

CAO Group v. Den-Mat Holdings, 2:15-cv-07731-SJO-FFM (C.D. Cal.) (“the patent

infringement action”), Dkt. 2. The United States District Court for the District of Utah

transferred the case to the Central District of California on September 29, 2015. Id., Dkt.

35. The case was thereafter stayed for two years pending the United States Patent and

Trademark Office’s (“USPTO”) reexamination of one of the patents at issue. CSUF No.

1. After the USPTO completed its reexamination and verified CAO Group’s patent, the

district court lifted its stay in July 2017. DSUF No. 16.

C. The Parties Resolve the Infringement Suit and Execute Two

Agreements

CAO Group and DenMat thereafter began discussions to resolve the patent

infringement action. DSUF No. 17. On November 2, 2017, the parties agreed to dismiss

the patent infringement action, and the Court dismissed that action on November 3, 2017.

Patent Infringement Action, Dkt. 105, 106. In settlement of the patent infringement

action, the parties executed two agreements: (1) the Nonexclusive Patent License

(“License Agreement”); and (2) the Manufacturing and Services Agreement

(“Manufacturing Agreement”). DSUF No. 25.

The License Agreement and the Manufacturing Agreement give rise to the dispute

in this case. DenMat alleges that CAO Group breached the Manufacturing Agreement

by: (1) failing to fulfill DenMat’s initial purchase order; (2) failing to supply two or more

purchase orders; (3) refusing to manufacture products that comport with DenMat’s design

specifications; and (4) representing to DenMat that it had the right, ability, and intent to

perform. Dkt 38-10 at 12. DenMat further contends that CAO Group anticipatorily

repudiated the Manufacturing Agreement. Id. at 9.

CAO Group, in turn, asserts that DenMat breached both the License and

Manufacturing Agreements. See Countercl. ¶¶ 40, 63, 65. It alleges that DenMat

breached the License Agreement by failing to make required royalty payments and

provide quarterly reports. Id. ¶ 74. CAO Group further alleges that DenMat breached the

Manufacturing Agreement by: (1) refusing to allow it to purchase components from

DenMat or other vendors at the components’ fair market value; (2) failing to timely

provide it with DenMat’s manufacturing specifications; (3) declining to pay for tooling;

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Case No.  2:18-cv-06358-CAS(JEMx) Date  August 19, 2019

Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

DenMat and CAO Group each seek partial summary judgment. See D. Mot. at 1;

C. Mot. at 2. DenMat seeks partial summary judgment on its own claim that CAO Group

anticipatorily repudiated the Manufacturing Agreement and summary judgment on each

of CAO Group’s counterclaims. D. Mot. at 1. CAO Group seeks summary judgment on

each of DenMat’s claims. C. Mot. at 12.

i. The License Agreement

The License Agreement provides DenMat “a nonexclusive, license . . . to import,

export, make, manufacture, have made, make for others, use, offer for sale, sell, or

otherwise distribute” products covered by CAO Group’s patents. Dkt. 41-3, License

Agreement (“L. Agmt.”) § (2.1). In return for DenMat’s payment of a “License Issue

Fee” and ongoing royalty fees, CAO Group agreed to release its patent infringement

claims against DenMat. Id. § (3.1).

Specific provisions of the License Agreement which form the bases for the parties’

respective claims and contentions are set forth more fully below.

a. Sections 4.1, 4.2, and 4.3 Require DenMat to Pay a “License

Issue Fee” and Make Royalty Payments

Section 4.1 requires DenMat to pay CAO Group a License Issue Fee totaling

$800,000.00, with an initial $200,000.00 payment due “[w]ithin five (5) business days

after the Effective Date of this Agreement[.]” L. Agmt. § (4.1). DenMat must make a

second installment payment of $120,000.00 following its “acceptance of the first delivery

of the Initial Purchase Order under the [Manufacturing] Agreement[,]” and thereafter

make subsequent $120,000.00 payments every 30 days. Id.

Section 4.2 of the License Agreement provides that DenMat must also pay to CAO

Group a 10% royalty payment for products “used, sold, or otherwise disposed of pursuant

to the license granted[.]” Id. § (4.2). The royalty obligations began on January 1, 2018,

and were set to continue until CAO Group’s patents expired. Id. Any individual royalty

amounts paid pursuant to the License Agreement “shall be deemed earned when paid and

shall be completely non-refundable.”1 Id.

1 Another provision titled “Payments Non-Refundable,” Section 5.5, reiterates that

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Case No.  2:18-cv-06358-CAS(JEMx) Date  August 19, 2019

Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

Section 4.3 of the License Agreement exempts certain products from its royalty

provisions. Id. § (4.3). These include products that DenMat purchases from CAO Group

that DenMat later resells; products that DenMat sells before it receives its first delivery

from CAO Group under the Manufacturing Agreement; products that DenMat makes for

itself or obtains from a third party due to CAO Group’s uncured material breach of the

Manufacturing Agreement; and all products that DenMat sells after achieving “the

Purchase Threshold” defined in the Manufacturing Agreement. L. Agmt. § (4.3).

b. Sections 5.2, 5.3, and 5.4 Require Quarterly Royalty

Payments, Written Reports, and Interest on Late Payments

The License Agreement also requires DenMat to make its royalty payments on a

quarterly basis, within thirty days of the end of each calendar quarter. L. Agmt. § (5.2).

At CAO Group’s request, DenMat must provide a written statement of all royalty

amounts due, including the number of units of each model sold, net sales prices for each

product sold, and the royalty fee payable. Id. § (5.3). Late payments are subject to ten

percent interest until the amount is paid in full. Id. § (5.4).

ii. The Manufacturing Agreement

The parties also entered into a Manufacturing Agreement providing that CAO

Group would manufacture, and DenMat would purchase, products that DenMat had

previously sold under the SOL® and NV®Pro3 trade names. Dkt. 41-4 at 2,

Manufacturing Agreement (“M. Agmt.”) § (1.1). DenMat would then market and resell

these finished products. Id.

Specific provisions of the Manufacturing Agreement which form the bases for the

parties’ respective claims and contentions are set forth more fully below.

a. Section 3.1 Requires DenMat to Provide Design Files to

CAO Group and Pay for Necessary Tooling

To manufacture the dental lasers and laser tips that DenMat itself previously

produced under the SOL® and NV®Pro3 trade names, CAO Group required access to

DenMat’s design files. Accordingly, Section 3.1 of the Manufacturing Agreement

requires DenMat to provide to CAO Group “the molds for injection molded housing

components, dimensioned engineering drawings, electronic design files, software

programs, and any other design files required for manufacturing[.]” M. Agmt. § (3.1).

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Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

such tooling fee.” Id. Tooling refers to the “construction of separate components and

machines needed to make the lasers,” such as molds for plastic housings, fixtures,

gauges, and dies. Dkt. 41-1 at 5.

b. Sections 4.1, 4.2, and 4.3 Establish Development and

Manufacturing Obligations

Section 4.1 of the Manufacturing Agreement requires CAO Group to “use

commercially reasonable efforts to create a timeline for setting up the manufacture and

delivery” of dental lasers and laser tips to DenMat. M. Agmt. § (4.1). CAO Group must

use “commercially reasonably efforts . . . to develop and deliver” the products within

three months of executing the Agreement. Id. Manufacturing and delivery “may take

more or less time depending on many factors.” Id.

Section 4.2 grants DenMat an option to require CAO Group to purchase DenMat’s

existing component inventory. Id. § (4.2). Should DenMat exercise this option, CAO

Group must pay DenMat the lesser of: (1) DenMat’s material cost, plus four percent; or

(2) the then-current fair market price of equivalent component inventory. Id. DenMat’s

exercise of the option would bar CAO Group from purchasing any “substantially

equivalent” components until DenMat’s existing component inventory is depleted. Id.

Section 4.3 requires CAO Group to “use best efforts to maintain the necessary

manufacturing capability to fill orders for Products received from” DenMat. Id. § (4.3).

CAO Group’s failure to “timely supply all or substantially all” of two or more purchase

orders, and its inability to cure such failure within ten business days, constitutes a

“material breach” of the Manufacturing Agreement, unless that failure is attributable to

DenMat. Id.

c. Section 5.2 Specifies Particular Purchase Prices and

Quantities

The Manufacturing Agreement specifies the prices at which CAO Group is

required to sell finished dental laser and laser tips to DenMat, as well as the minimum

number of units DenMat must purchase annually. DenMat must purchase a minimum of:

two hundred and forty SOL laser kits per year, at a price of $1,199.00 per unit; two

hundred and forty NV laser kits per year, at a price of $1,1029.00 per unit; and one

hundred and twenty-five thousand laser tips per year, at a price of $1.95 per unit. M.

Agmt. § (5.2). This provision requires DenMat to pay CAO Group the same prices for

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Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

ultimately uses to manufacture these products. DSUF No. 102. DenMat’s purchase of

$4.5 million in products from CAO Group triggers an eight percent decrease in the prices

that DenMat pays to CAO Group for SOL laser kits, NV laser kits, and laser tips. M.

Agmt. §§ (5.2, 7.3).

d. Sections 7.1, 7.2, and 7.3 Require DenMat to Issue an Initial

Purchase Order and Make Subsequent Regular Purchases

Towards a “Paid-Up and Royalty-Free” License

Following the parties’ completion of “manufacturing logistics,” Section 7.1 of the

Manufacturing Agreement requires DenMat to issue an “Initial Purchase Order”

consisting of one hundred and fifty NV laser kits, one hundred and fifty SOL laser kits,

and two hundred thousand laser tips. M. Agmt. § (7.1). DenMat retains authority to

determine the “delivery schedule and quantities of each type of laser tip” prior to issuing

the Initial Purchase Order. Id. Section 7.1 requires CAO Group to provide the Initial

Purchase Order “at no cost” to DenMat. Id.

Section 7.2 establishes minimum purchase quantities that DenMat must purchase

each month after delivery of the Initial Purchase Order. Id. § (7.2). These monthly

minimums commence thirty days after delivery of the Initial Purchase Order and require

DenMat to purchase, at minimum, twenty SOL laser kits and twenty NV laser kits each

calendar month. Id.

Section 7.3 grants DenMat a “fully paid-up and royalty-free license” to CAO

Group’s patent rights pursuant to thirteen of CAO Group’s patents. M. Agmt. § (7.3).

To earn this license, DenMat must purchase $4.5 million worth of product from CAO

Group. Id.

e. Section 9.5 Requires CAO Group to Adhere to DenMat’s

Specifications and Obtain Written Approval for Any

Changes

Section 9.5 requires CAO Group to manufacture dental lasers and laser tips “in

accordance with [DenMat]’s specifications, drawings, and technical requirements, using

approved vendors and components[.]” M. Agmt. § (9.5). Accordingly, CAO Group

“shall not change any bills of materials, vendors, or work instructions without

[DenMat’s] prior written approval[.]” Id.; CSUF No. 12.

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Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

f. Sections 11.2 and 11.3 Require Specific Representations

In executing the Manufacturing Agreement, DenMat represents that: “(a) it has the

right, ability and intention to enter into this Agreement and perform its obligations

hereunder; and (b) it has entered into no other agreement in conflict with this

Agreement.” M. Agmt. § (11.2). The Agreement contains another provision requiring

that CAO Group represent the same. Id. § (11.3).

g. Sections 12.1 and 12.2 Govern the Agreement’s

Termination

Section 12 specifies the Manufacturing Agreement’s effective duration, and it

provides several means by which either party may terminate the Agreement. M. Agmt.

§§ (12.1, 12.2). By default, the Licensing Agreement remains in effect until DenMat

purchases more than $4.5 million in product from CAO Group, at which time DenMat

may terminate the Manufacturing Agreement in its sole discretion. Id. § (12.1). Should

DenMat choose not to terminate the Manufacturing Agreement, the Manufacturing

Agreement may be renewable for additional three-year periods subject to both parties’

good faith agreement. Id.

The Manufacturing Agreement may be terminated: by the parties’ mutual written

consent; at DenMat’s option following written notice to CAO Group after DenMat

exceeds $4.5 million in purchases; or at either party’s option, following written notice,

should the other commit a material breach and fail to cure the breach within thirty days of

receiving written notice. Id. § (12.1(a)(b)(c)(d)).

The means used to terminate the Manufacturing Agreement dictate the continuing

duties and obligations of the respective parties. CAO Group is excused from selling

products to DenMat if the Manufacturing Agreement is terminated by the parties’ mutual

written consent, at DenMat’s option following more than $4.5 million in product sales, or

at CAO Group’s option following DenMat’s uncured material breach. Id. § (12.2(a)). If

DenMat terminates the Manufacturing Agreement because of CAO Group’s uncured

material breach, then CAO Group may continue to provide products to DenMat at

DenMat’s discretion, and DenMat shall continue to enjoy a patent license. Id. §

(12.2(b)).

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Case No.  2:18-cv-06358-CAS(JEMx) Date  August 19, 2019

Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

D. The Parties’ Performance Under the Agreements

i. DenMat Makes an Initial $200,000 Payment Under the Licensing

Agreement, and the Parties Initially Cooperate to Transition

Manufacturing Responsibility to CAO Group

Within five days of executing the License Agreement on November 2, 2017,

DenMat made the required initial $200,000.00 payment to CAO Group. DSUF No. 25.

The parties thereafter commenced preparations so that CAO Group could begin

manufacturing the dental lasers and laser tips specified by the Manufacturing Agreement.

Id. No. 41.

DenMat began transferring the instructions to make its dental lasers and laser tips

to CAO Group in November 2017. DSUF No. 38. To do so, it created a File Transfer

Protocol site through which CAO Group would have direct access to DenMat’s

engineering drawings, component specifications, work instructions, vendor lists, and

other information. Id. No. 40. On November 9, 2017, DenMat indicated to CAO Group,

in writing, that it could source laser components from alternative vendors so long as it

“validated” the alternative vendors and received DenMat’s approval. Id. No. 149.

ii. DenMat Provides Information Regarding Its Components’ Costs

to CAO Group

In February 2018, DenMat provided CAO Group with the pricing it paid for its

laser components.2 DSUF No. 49. CAO Group notified DenMat that, from its own

vendors, CAO Group could obtain lower pricing on these components, though the

difference in “the total dollar amount is not huge.” Id. No. 51. DenMat never exercised

its option to require CAO Group to purchase its component inventory, and it never

expressed to CAO Group whether it intended to do so.3 CSUF Nos. 36–37. CAO Group

2 CAO Group disputes this fact to the extent that it represents DenMat sent CAO

Group this information at CAO Group’s request. CGDF No. 49. DenMat also asserts

that “the parties were in constant contact regading [sic] DenMat’s inventory, which CAO

could have purchased at any time.” DGDF No. 34.

3 DenMat does not dispute that it never exercised its option but asserts that “CAO

did not ask DenMat whether it intended to exercise the option in Section 4.2 of the

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Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

contends that “DenMat’s refusal to provide this basic information effectively prevented

CAO from arranging to purchase components from other sources and otherwise plan its

manufacturing process.” C. Mot. at 12–13. That is because, according to CAO Group, it

“was never able to determine which, and how many, components CAO would be required

to purchase from DenMat’s existing inventory and which components CAO would be

permitted to purchase from other sources.” Id. at 13.

iii. CAO Delivers Several Products to DenMat, and DenMat

Subsequently Provides Its Manufacturing Specifications

In February 2018, CAO Group manufactured and delivered several products to

DenMat for testing during the pilot builds and validation process. CSUF No. 39; DSUF

No. 154; see also Dkt. 41-18, Deposition of Nicholas Gonzales (“Gonzales Depo.”) at

74:2–16. DenMat provided the components for these lasers to CAO Group “free of

charge.” DSUF No. 155. This batch of products did not pass validation testing,4 id. No.

44, and products that fail validation testing cannot be sold to customers, CSUF No. 22;

DSUF No. 47. As a result, DenMat disassembled these validation batches, using them

for parts or scrapping them. DSUF No. 48.

iv. DenMat’s February 27, 2018 Purchase of Dental Lasers and Laser

Tips

The Manufacturing Agreement requires DenMat to purchase from CAO Group, as

part of an Initial Purchase Order, a total of one hundred and fifty NV laser kits, one

hundred SOL laser kits, and two hundred thousand laser tips. M. Agmt. § (7.1). The

Agreement mandates that DenMat issue this Initial Purchase Order “after completion of

manufacturing logistics[.]” Id.

On February 27, 2018, DenMat submitted paperwork to purchase the requisite total

quantities of product set forth as part of the Initial Purchase Order requirements in the

Manufacturing Agreement. DSUF No. 153. CAO Group contends that the paperwork

DenMat submitted consists of “six purchase orders,” CSUF No. 17, while DenMat asserts

4 The parties dispute whether CAO Group delivered any dental lasers or laser tips to

DenMat that passed validation testing. See CGDF Nos. 44, 138. DenMat asserts that

“CAO was unable to pass validation testing for either SOL or NVPro3 (and did not

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it submitted one purchase order “comprised of different quantities over multiple delivery

dates, which is common in a manufacturing and supply agreement[.]” DGDF No. 17.

The parties dispute whether the Initial Purchase Order was fulfilled. CGDF No.

159. DenMat asserts that CAO Group “never delivered a single sellable laser to

DenMat.” DSUF No. 138. CAO Group insists that DenMat did not provide the product

specifications that CAO Group needed to begin manufacturing product until March or

April of 2018, CSUF No. 32, and that “[t]his failure by DenMat . . . prevented CAO from

building and delivering products in response to any purchase orders,” C. Mot. at 13. In

any event, CAO Group maintains that it “delivered multiple finished lasers to DenMat

between February 2018 and April 2018.” CGDF No. 138.

v. DenMat Declines to Reimburse CAO Group for Tooling

On May 22, 2018, CAO Group invoiced DenMat for tooling it represented was

necessary to manufacture the laser tips. CSUF No. 66. DenMat declined to pay for this

tooling, id., and as a result, CAO Group did not order or pay for this tooling, dkt. 46-1,

DenMat’s Statement of Additional Uncontroverted Facts (“DAUF”) No. 68. CAO Group

contends that DenMat’s decision not to pay for tooling constitutes a breach of the

Manufacturing Agreement. C. Mot. at 5–6.

vi. CAO Group’s May 16, 2018 Proposal and Dr. Cao’s Subsequent

“D.O.A.” Statement

CAO Group made a formal proposal to DenMat on May 16, 2018, to transition

away from the vendors and components that DenMat had been using. CSUF No. 47.

The proposal indicated that, given the sales prices the Manufacturing Agreement

specified, “the act of assuming manufacturing is simply not economically viable under

the terms of continued purchase of parts and materials exactly as DenMat is doing now.”

Dkt. 41-8 at 3. Therefore, [f]or this activity to be profitable, CAO must make some

adjustments to the sourcing of components for these products.” Id. The proposal

acknowledged that substitutions would require DenMat’s approval. CSUF No. 50.

DenMat subsequently declined CAO Group’s proposal. Dkt. 38-12 at 7. Dr. Cao,

CAO Group’s president, subsequently contacted David Casper, DenMat’s CEO, to

determine why. CSUF No. 52. Casper represents that during this conversation, Dr. Cao

stated that the Manufacturing Agreement was “D.O.A.” Dkt. 38-12 at 7. The parties

dispute the significance of this statement.

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CAO Group represents that “if DenMat had not intended to approve vendors and

components other than those DenMat had been using,” then it would not have entered the

Manufacturing Agreement because manufacturing products using DenMat’s existing

vendors and components would cause CAO Group to suffer a loss on each laser. CGDF

No. 166. Therefore, CAO Group maintains that in making the “D.O.A.” statement, Dr.

Cao “meant that the contract would have been a losing venture from CAO from the

beginning, because DenMat’s known cost to make each laser using its existing vendors

and components was higher than the final sale price that CAO was permitted to charge

DenMat per laser[.]” CSUF No. 56. In contrast, DenMat asserts the statement reflects a

“refus[al] to perform in accordance with [the Manufacturing Agreement’s] terms . . . to

make more money out of the deal[.]” DGDF No. 56.

vii. The Parties Exchange Correspondence Regarding Anticipatory

Repudiation of the Manufacturing Agreement

On May 29, 2018, DenMat’s counsel sent a letter to CAO Group alleging that it

had repudiated the Manufacturing Agreement. CSUF No. 61. The letter specifically

references CAO Group’s May 16, 2018 proposal, including the statement that “the act of

assuming manufacturing is simply not economically viable,” as well as Dr. Cao’s

“D.O.A.” statement on May 24, 2018. Dkt. 41-10 at 2. It requests that “CAO

immediately revoke[] its repudiation and agree[] to honor the terms of the Agreement[.]”

Id. at 3.

CAO Group responded to DenMat’s May 29, 2018 letter in its own letter dated

June 1, 2018. CSUF No. 62. In it, counsel for CAO Group indicated that “CAO ha[d]

not repudiated the Manufacturing Agreement and d[id] not wish to do so.” Dkt. 41-11 at

2. CAO Group reiterated that, “[f]or the sake of absolute clarity, CAO hereby revokes

any statements of repudiation that may have been made on its behalf, even though it is

not aware of any such statements.”5 Id.

viii. DenMat’s June 4, 2018 “Written Notice of Breach of Contract”

and June 26, 2018 “Notice of Termination” Letters

On June 4, 2018, counsel for DenMat sent CAO Group a letter entitled “Written

Notice of Breach of Contract.” DSUF No. 167. In it, DenMat asserted that CAO Group

5 DenMat disputes whether, as a matter of law or fact, CAO Group’s June 1, 2018

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had breached “one or more material terms” of the Manufacturing Agreement including

Sections 4.3, 7.1, 9.5, and 11.3. Dkt. 38-10 at 16. DenMat urged that these purported

breaches “trigger the termination provisions in § 12.2(b) of the Agreement.” Id. It

demanded return of the $200,000.00 initial payment it made to CAO Group under the

License Agreement and written acknowledgment that the Manufacturing Agreement had

been terminated. Id. at 17. DenMat reiterated these demands in a “Notice of

Termination” letter dated June 26, 2018. Dkt 38-10 at 12.

III. LEGAL STANDARDS

Summary judgment is appropriate where “there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a). The moving party bears 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 claim upon which the moving party seeks judgment. See Celotex Corp.

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

If the moving party meets its initial burden, the opposing party must then set out

“specific facts showing a genuine issue for trial” in order to defeat the motion. Anderson

v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); see also Fed. R. Civ. P. 56(c), (e). The

nonmoving party must not simply rely on the pleadings and must do more than make

“conclusory allegations [in] an affidavit.” Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871,

888 (1990); see also Celotex, 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 (9th 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 (9th 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 Nat’l Bank of Ariz. v. A.E. Rouse & Co., 121

F.3d 1332, 1335 (9th Cir. 1997). 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

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IV. DISCUSSION

CAO Group moves for summary judgment on both of DenMat’s claims for relief.

C. Mot. at 2. DenMat moves for partial summary judgment as to its first claim on the

issue of anticipatory repudiation, as well as for summary judgment on CAO Group’s

counterclaims. D. Mot. at 1.

A. The Parties’ Breach of Contract Claims

The parties assert breach of contract claims against each other. DenMat’s first

claim alleges that CAO Group repudiated and materially breached the Manufacturing

Agreement by failing to timely supply multiple purchaser orders, including the Initial

Purchase Order, refusing to manufacture products using DenMat’s approved vendors and

components, and misrepresenting its intent to perform its contractual duties. Compl. ¶

41. CAO Group’s first and third claims allege that DenMat breached the License and

Manufacturing Agreements by failing to make required royalty payments and reports,

submitting an invalid initial purchase order, refusing to pay for tooling, and providing

manufacturing specifications on an untimely basis. Countercl. ¶¶ 74, 84. To prevail on a

claim for breach of contract, a party must show “(1) the existence of the contract6, (2)

plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the

resulting damages to the plaintiff.” Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811,

821 (2011) (internal citation omitted).

i. Whether Triable Issues Exist Regarding DenMat’s Performance

Under the Manufacturing and License Agreements

The materiality of an obligation or a breach of that obligation “is generally a

question of fact.” Urica, Inc. v. Pharmaplast S.A.E., No. CV1102476MMMRZX, 2013

WL 12123230, at *7 (citing Associated Lathing etc. Co. v. Louis C. Dunn, Inc., 135

Cal.App.2d 40, 49 (1955)). Whether triable issues exist regarding DenMat’s

performance under the Manufacturing and License Agreements bears on the Court’s

determination of both parties’ motions.

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a. DenMat’s Performance Under the Manufacturing

Agreement

CAO Group seeks summary judgment on DenMat’s breach of contract claim on

the grounds that DenMat itself “has failed to perform its duties under the Manufacturing

Agreement, without any valid legal excuse.” C. Mot. at 4. CAO Group alleges that

DenMat breached Section 7.1, by failing to submit a valid Initial Purchase Order, as well

as Section 3.1, by refusing to pay for necessary tooling. Id. at 4–6. Triable questions of

fact exist that preclude the Court from granting summary judgment to CAO Group.

For example, there is disputed evidence regarding the purchase order paperwork

that DenMat submitted to CAO Group on February 27, 2018, and whether CAO Group

obtained manufacturing specifications sufficient to fulfill these orders. Each page of

what DenMat claims to be its single Initial Purchase Order contains a “Purchase Order

No.” field, and each of the six pages contains a different number in this field. Dkt. Nos.

38-9 at 33–36, 38-10 at 1–3. Moreover, DenMat’s Chief Executive Officer, David

Casper testified that “the initial purchase order is to be issued after the manufactured

initial logistics were completed, . . .and we had not gotten there yet.” Dkt. 41-16,

Deposition of David Casper (“Casper Depo.”) at 153:24–154:3. On the other hand, the

parties do not dispute that the quantities of products described over the six separate pages

that DenMat submitted on February 27, 2018, together add up to the total amounts

required by Section 7.1. DSUF No. 153. DenMat offers deposition testimony that the

parties treated the February 27, 2018 purchases “as one” and that “as of February 27th,

CAO Group clearly felt they had what they needed to build both lasers,” since DenMat

later delivered lasers for validation testing. Casper Depo. at 161:16–20, 169:4–6. At this

juncture, the Court cannot determine whether DenMat complied with Section 7.1’s Initial

Purchase Order requirements or whether any failure to do so was material.

Nor can the Court determine, at this time, whether DenMat’s May 22, 2018 refusal

to pay CAO Group for tooling constitutes a material breach of the Manufacturing

Agreement. CAO Group offers, as support, a series of emails wherein CAO Group

submitted an invoice for $42,300 in tooling on May 22, 2018, and CAO Group declined

this request in writing on June 6, 2018. Dkt. No. 41-12 at 2. In response, DenMat offers

the undisputed fact that CAO Group never ordered or paid for this tooling.7 CRSDF No.

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68. The Court observes that CAO Group’s request for payment for tooling came on May

22, 2018, nearly three months after DenMat submitted purchase orders for lasers and

laser tips on February 27, 2018. Accordingly, genuine disputes of fact preclude the Court

from determining, at this time, that any failure by DenMat to pay CAO Group for tooling

in May 2018 excused any failure by CAO Group to fulfill a purchase order submitted

some three months earlier. See Urica, 2013 WL 12123230, at *6 (“a material breach of

contract excuses further performance by the injured party and entitles that party to

terminate the contract.”) (emphasis added).

Questions of fact exist regarding DenMat’s performance under the Manufacturing

Agreement. The disputed record therefore precludes the Court from granting summary

judgment to CAO Group on the grounds that DenMat’s lack of performance excused

CAO Group’s own further performance under the Manufacturing Agreement.

b. DenMat’s Performance Under the License Agreement

DenMat moves for summary judgment on CAO Group’s claim that DenMat

breached the License Agreement, contending that subsequent license payments never

became due because the condition precedent, delivery under the Initial Purchase Order,

never occurred. D. Mot. at 23. DenMat asserts that “CAO [Group] never delivered a

single sellable laser to DenMat[.]”8 Id. CAO Group in turn urges that the second and

subsequent $120,000 License Issue Fee payments became due because “DenMat

accepted multiple laser deliveries from CAO [Group].” C. Opp. at 21.

The Court has already found that triable issues exist regarding whether DenMat’s

February 27, 2018 purchases complied with the Manufacturing Agreement. Genuine

disputes also exist regarding CAO Group’s fulfillment of those purchases. For example,

former CAO Group employee Nathan Hult testified that “while I was there, we never did

deliver the first . . . lasers[.]” Dkt. 38-1, Deposition of Nathan Hult (“Hult Depo.”) at

79:25–80:3. Casper likewise asserts that “DenMat never received a delivery from CAO

[Group] of a single sellable SOL, NVPro3, laser tip or any other product that DenMat

could sell or did sell to its customers,” Casper Decl. I. ¶ 15. Conversely, DenMat

invoice without CAO [Group] first providing the specifications for the proposed tooling.”

Dkt. No. 46-2, Declaration of David Casper (“Casper Decl. II”) ¶ 5.

8 DenMat’s motion does not address CAO Group’s claims that DenMat also

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acknowledges that it received units that passed validation, and that units which pass

validation “could then be put into finished goods in an unquarantined fashion and sold.”

Casper Depo. at 198:22–25; Gonzales Depo. at 187:11–13.

Conflicting evidence in record prevents the Court from determining, at this time,

whether subsequent payments under the License Agreement became due or whether

DenMat materially breached the License Agreement by failing to make them. Summary

judgment for DenMat on this ground is therefore improper.

ii. Whether Triable Issues Exist Regarding CAO Group’s

Performance Under the Manufacturing Agreement

a. DenMat’s Actual Breach Claims

DenMat alleges that CAO Group breached Sections 4.3, 7.1, 9.5, and 11.3 of the

Manufacturing Agreement by failing to timely supply multiple purchase orders, including

the Initial Purchase Order, refusing to manufacture products using DenMat’s approved

vendors and components, and misrepresenting its intent to perform its contractual duties.

Dkt. 38-10 at 16. DenMat seeks summary judgment on CAO Group’s breach of contract

claim, contending that CAO Group cannot maintain a claim for breach in light of its own

material breaches. D. Mot. at 11. CAO Group in turn moves for summary judgment on

DenMat’s claim that CAO Group breached these provisions of the Manufacturing

Agreement.9 D. Mot. at 3.

Numerous genuine issues of fact preclude the Court from granting summary

judgment to either party regarding CAO Group’s performance under the Manufacturing

Agreement. For example, DenMat alleges that CAO Group breached Section 9.5 of the

Manufacturing Agreement by failing to “manufacture the Products in accordance with

DenMat’s specifications . . . using approved vendors and components[.]” Compl. ¶ 35.

In response, CAO Group contends that any failure to manufacture products in accord

with DenMat’s requirements was because “DenMat did not timely provide CAO with the

specifications and information that CAO needed to make the products[.]” C. Mot. at 14.

9 DenMat’s June 4, 2018 letter to CAO Group alleges that CAO Group breached Sections

4.3, 7.1, 9.5, and 11.3 of the Manufacturing Agreement, while its operative complaint

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The record contains conflicting evidence on this point. For example, DenMat

employees testified that DenMat did not provide CAO Group all the materials that CAO

Group needed for manufacturing until March or April of 2018, that CAO Group

continued to request information from DenMat through May 24, 2018, and that “certain

errors caused by Den-Mat may have led to delays.” Gonzales Depo. at 208:17–21;

Casper Depo. at 170:1–171:6. CAO Group’s delivery of validation lasers to DenMat

during this time, however, could allow a finder of fact to determine that “as of February

27th, CAO Group clearly felt they had what they needed to build both lasers[.]” Casper

Depo. at 169:4–6.

The parties also dispute whether CAO Group’s desire for additional profits caused

these delays. DenMat contends that in a June 22, 2018 conversation between Dr. Cao

and David Casper, Dr. Cao stated that although CAO Group “would earn a profit if it

performed under the Manufacturing Agreement using DenMat’s components and vendors

(12% profit margin on SOL and 5% profit margin on NVPRO3) . . . this was not as much

profit as CAO wanted to make.”10 Casper Decl. II ¶ 11. A finder of fact could

reasonably conclude that CAO Group’s failure to provide dental lasers and laser tips to

DenMat, using DenMat’s approved vendors and components, was the result of either

DenMat’s own delays or CAO Group’s desire for additional profits.

For these reasons, the Court cannot determine, at this stage of the litigation,

whether CAO Group materially breached various provisions of the Manufacturing

Agreement or was excused in doing so. Genuine disputes of fact therefore preclude the

Court from granting summary judgment to either party.

b. DenMat’s Anticipatory Repudiation Claims

DenMat seeks partial summary judgment as to its own breach of contract claim,

contending that CAO Group made a series of statements that constitute express

10 CAO Group disputes DenMat’s characterization of this conversation as “Mr.

Casper’s interpretation of something Dr. Cao allegedly said[.]” CRSDF No. 53. CAO

Group also disputes that it could turn any profit using DenMat’s approved components

and vendors and that “DenMat knew at the time the parties entered the Manufacturing

Agreement that the only way CAO could make money . . . was to pay lower costs by

using alternative vendors and components, rather than using DenMat’s existing vendors

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anticipatory repudiation. D. Mot. at 11. CAO Group seeks summary judgment as to

DenMat’s claim, contending that, as matters of law, these various statements are

insufficiently “clear, positive, [and] unequivocal” to constitute repudiations. C. Mot. at

17.

Anticipatory repudiation occurs where a party “positively repudiates the contract

by acts or statements indicating that it will not or cannot substantially perform essential

terms thereof.” Mission Beverage Co. v. Pabst Brewing Co., LLC, 15 Cal. App. 5th 686,

702 (2017) (citing Guerrieri v. Severini, 51 Cal. 2d 12, 18 (1958)) (internal punctuation

omitted). “In each case, it is a question of fact as to whether or not a party has committed

an anticipatory breach by repudiating the contract.” Pac. Coast Eng’g Co. v. Merritt-

Chapman & Scott Corp., 411 F.2d 889, 894 (9th Cir. 1969); accord Purdum v. Wolfe,

No. C-13-04816 DMR, 2014 WL 171546, at *5 (N.D. Cal. Jan. 15, 2014). “[R]epudiation

is ordinarily a question of fact and intent, and [it] must be determined by the facts in the

particular case.” Gold Mining & Water Co. v. Swinerton, 23 Cal. 2d 19, 28 (1943).

The parties’ contentions regarding Dr. Cao’s May 24, 2018, “D.O.A.” statement

provide but one example of the factual disputes that exist regarding the circumstances

and intentions underlying CAO Group’s various alleged repudiating statements.11 DGDF

No. 56. Moreover, CAO Group also argues that its June 1, 2018 letter “revoke[d] any

statements of repudiation that may have been made on its behalf[.]” Dkt. 41-11 at 2; C.

Mot. at 22. But whether that revocation was effective turns on whether “the injured party

disregards the repudiation and treats the contract as still in force[.]” Mammoth Lakes

Land Acquisition, LLC v. Town of Mammoth Lakes, 191 Cal. App. 4th 435, 463 (2010).

That too raises additional disputes, including whether DenMat detrimentally relied on

CAO Group’s alleged repudiating statements before CAO Group may have retracted

them. See Ferguson v. City of Cathedral City, 197 Cal. App. 4th 1161, 1170 (2011)

(finding that in case of purported retraction of repudiation, “[q]uestions of justifiable

reliance constitute questions of fact which cannot be resolved when the facts are

disputed.”).

11 DenMat asserts that Dr. Cao’s statement meant that as of May 24, 2018, “CAO

[Group] would not honor the Manufacturing Agreement.” D. Opp. at 11. CAO Group

contends that Dr. Cao meant that CAO Group would not have entered the Manufacturing

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iii. Whether Triable Issues Exist Regarding DenMat’s Damages

CAO Group asserts that, even if triable issues of fact remain regarding the first

three elements of DenMat’s breach of contract claim, it is entitled to summary judgment

because “[t]here is no evidence that DenMat has incurred any damages at all, let alone

any as a result of breaches by CAO.” C. Mot. at 15. DenMat contends that it has

adduced sufficient evidence to raise a triable issue to the damages it suffered as a result of

CAO Group’s purported breaches. D. Opp. at 15.

“Under California law, a breach of contract claim requires a showing of

appreciable and actual damage.” Aguilera v. Pirelli Armstrong Tire Corp., 223 F.3d

1010, 1015 (9th Cir. 2000). To withstand a motion for summary judgment, DenMat

“must provide evidence such that the jury is not left to ‘speculation or guesswork’ in

determining the amount of damages to award.” Dolphin Tours, Inc. v. Pacifico Creative

Serv., Inc., 773 F.2d 1506, 1509–10 (9th Cir. 1985) (internal citation omitted). But

“[w]here the fact of damages is certain . . . the amount of damages need not be calculated

with absolute certainty. The law requires only that some reasonable basis of computation

be used, and the result reached can be a reasonable approximation.” JMR Constr. Corp.

v. Envtl. Assessment & Remediation Mgmt., Inc., 243 Cal. App. 4th 571, 585 (2015)

(ellipsis and emphasis in original) (internal citation omitted).

The disputed evidence before the Court prevents the Court from determining, at

this stage, that DenMat cannot recover damages. For example, DenMat’s CEO, David

Casper, testified: that DenMat “had sent a $200,000 check” to CAO Group12; that

DenMat “had sent tens of thousands of dollars of components to” CAO Group; and that

DenMat “had sent a team of people on multiple occasions to Utah[.]” Casper Depo. at

238:23–239:4. It supplants this testimony with Casper’s declaration reiterating the nature

12 CAO Group asserts that DenMat cannot recover this $200,00 payment as damages

for CAO Group’s purported breach of the Manufacturing Agreement because the

payment obligation arose under the separate License Agreement. C. Mot. at 15. Dr.

Cao’s declaration, however, raises an inference that the parties executed the two

agreements together to resolve previous patent infringement litigation. Cao Decl. II ¶¶

85–89. Dr. Cao asserts that “[i]n exchange for agreeing to accept [license] installment

apyments from DenMat over time rather than the full $800,000 up front, CAO [Group]

proposed a supplemental arrangement, where CAO [Group] would take over DenMat’s

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of these losses, in addition to “lost gains in profits expected from the transfer of its laser

manufacturing to CAO[.]” Casper Decl. I ¶ 4. That is sufficient to raise a question of fact

regarding damages. See Morgan Creek Prods., Inc. v. Capital Cities/ABC, Inc., No. CV-

89-5463-RSWL(JRX), 1991 WL 352619, at *16–17 (C.D. Cal. Oct. 28, 1991) (finding

that deposition testimony that allegedly infringing television show caused film sequel to

suffer lost gains in box office profits expected between original film and sequel precluded

summary judgment on issue of damages).

B. CAO Group’s Implied Covenant of Good Faith and Fair Dealing

Claims

CAO Group asserts counterclaims against DenMat for violating the implied

covenant of good faith and fair dealing. Countercl. ¶¶ 79, 89. CAO Group alleges that

DenMat acted in bad faith by refusing to make the second and subsequent License Issue

Fee payments despite having accepted multiple laser deliveries from CAO Group. C.

Opp. at 21. CAO Group also contends that DenMat acted in bad faith by refusing to

allow it to use alternative vendors and components, knowingly causing CAO Group to

manufacture products at a loss. C. Opp. at 19. DenMat moves for summary judgment as

to these claims, contending that it acted in accord with its express contractual rights, and

its conduct therefore “cannot be a breach [of the implied covenant], as a matter of law.”

D. Mot. at 21.

“Every contract imposes upon each party a duty of good faith and fair dealing in its

performance and its enforcement.” Carma Developers (Cal.), Inc. v. Marathon Dev.

California, Inc., 2 Cal. 4th 342, 371 (1992). The covenant of good faith and fair dealing

may not, however, “prohibit a party from doing that which is expressly permitted by an

agreement.” Id. at 374. But “where a contract confers on one party a discretionary

power affecting the rights of the other, a duty is imposed to exercise that discretion in

good faith and in accordance with fair dealing.” Perdue v. Crocker Nat’l Bank, 38 Cal.

3d 913, 923 (1985) (citing Cal. Lettuce Growers v. Union Sugar Co., 45 Cal. 2d 474, 487

(1955)).

The Court has already determined that numberous triable issues of fact exist. For

example, a finder of fact must determine whether CAO Group complied with its initial

purchase order requirements under the Manufacturing Agreement, sufficient to trigger

DenMat’s subsequent payment obligations under the License Agreement. Similarly, a

finder of fact must also decide whether CAO Group could have profitably manufactured

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cannot decide, based on the disputed record, whether DenMat’s purported failure to

comply with provisions of these agreements was motivated by bad faith. See Las Vegas

Land & Dev. Co., Inc. v. Bank of Am., N.A., No. CV152273FMOMANX, 2018 WL

6991161, at *6 (C.D. Cal. Oct. 15, 2018) (denying summary judgment and noting that

“[t]he issue of whether the implied covenant of good faith and fair dealing has been

breached is ordinarily a question of fact[.]”) (citing Hicks v. E.T. Legg & Associates., 89

Cal.App.4th 496, 509 (2001)).

C. CAO Group’s Rescission Claim

CAO Group seeks rescission of the Manufacturing Agreement based on its

mistaken beliefs regarding its ability to source using alternative vendors and components,

as well as regarding the bases for the sales prices for dental lasers and laser tips specified

in the Agreement. Countercl. ¶¶ 93–97. DenMat moves for summary judgment on CAO

Group’s claim, contending that, as a matter of law, CAO Group cannot demonstrate the

unconscionability required to warrant rescission. D. Mot. at 23–24.

A party to a contract may rescind the contract where “the consent of the party

rescinding . . . was given by mistake[.]” Cal. Civ. Code § 1689(b)(1). “Rescission for

unilateral mistake is permissible under California law only ‘where the other party knows

of the mistake or caused the mistake’ or ‘where the effect of the mistake is such that

enforcement of the contract would be unconscionable.’” Hamilton v. Marx, No.

LACV1007278JAKCWX, 2012 WL 12882368, at *11 (C.D. Cal. July 24, 2012) (citing

Donovan v. RRL Corp., 26 Cal. 4th 261, 281 (2001)).

The parties dispute whether DenMat knew that CAO Group was using its own

internal costs to benchmark the sales prices fixed in the Manufacturing Agreement. CAO

Group provides evidence that when the parties negotiated these prices ($1,199 per SOL

laser kit, $1,029 per NV laser kit, and $1.95 per laser tip), M. Agmt. § (5.2), CAO Group

used its own cost estimates to determine these prices, understanding that, over time, it

would be able to use its own vendors and components to manufacture products for

DenMat. Dkt. 55-23, Declaration of Densen Cao (“Cao Decl. II”) at ¶¶ 63–67. CAO

Group offers evidence that it submitted its own “calculated pricing information to

DenMat, which was based on CAO’s estimation of its costs to make the products[.]” Id.

¶ 64. DenMat disputes that it was aware of CAO Group’s estimated costs or that CAO

Group considered these costs in negotiating the sales prices specified in the

Manufacturing Agreement. Casper Decl. I. at ¶ 10. This dispute regarding whether

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pricing term alone precludes summary judgment as to CAO Group’s rescission claim.

Neoris de Mexico, S.A. De C.V. v. Ariba Inc., No. C 02-01670 JSW, 2005 WL 947032,

at *3 (N.D. Cal. Apr. 25, 2005) (noting that element of rescission claim requires that

“other party knew of or caused the mistake,” and finding that “existence of genuine

issues of material fact . . . precludes summary judgment”).

The parties also dispute whether it would be unconscionable for CAO Group to

manufacture products for DenMat using only DenMat’s approved vendors and

components. D. Mot. at 24; C. Opp. at 25. Dr. Cao maintains that CAO Group could not

profitably manufacture products using only DenMat’s approved vendors and components,

and it would not have entered the Manufacturing Agreement had it known DenMat would

not allow it to use alternative vendors and components. Cao Decl. II ¶¶ 90–93; D. Opp.

at 25. David Casper, DenMat’s CEO, disputes that CAO Group could not have profitably

manufactured products using DenMat’s approved components and vendors. Casper Decl.

II ¶ 11. Because the Court cannot resolve whether CAO Group could have profitably

manufactured products using only DenMat’s approved vendors and components, the

Court cannot determine whether enforcing CAO Group’s purported unilateral mistake

would be sufficiently “overly harsh or one-sided” to justify rescission. Donovan, 26 Cal.

4th at 291.

D. The Parties’ Unjust Enrichment Claims

DenMat and CAO Group each assert claims for unjust enrichment. See Compl. ¶

47; Countercl. ¶ 104. The parties elsewhere contend that California courts do not

recognize unjust enrichment as a cause of action. D. Mot. at 24 n.7; C. Mot. at 24. The

Court agrees with the parties’ contentions that unjust enrichment is not, itself, a

cognizable claim under California law.

Unjust enrichment is not a claim for relief but instead a “general principle

underlying various legal doctrines and remedies” that “is synonymous with restitution.”

Rosal v. First Fed. Bank of California, 671 F. Supp. 2d 1111, 1133 (N.D. Cal. 2009)

(collecting cases). A court may award restitution under an unjust enrichment theory in

two scenarios: (1) the parties’ express contract was procured by fraud or is otherwise

unenforceable; or (2) the defendant extracted a benefit from plaintiff by fraud, duress,

conversion, or similar conduct. McBride v. Boughton, 123 Cal. App. 4th 379, 388

(2004). In these cases, courts imply a “quasi-contract” to avoid one party’s unjust

enrichment. Id.

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DenMat and CAO Group agree that the License and Manufacturing Agreements

were valid and enforceable at the time the parties executed them. DSUF No. 87; C. Mot.

at 24; D. Mot. at 24. Under California law, no unjust enrichment claim lies “when an

enforceable, binding agreement exists defining the rights of the parties.” Paracor Fin.,

Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996); accord Exp.-Imp.

Bank of the U.S. v. United Cal. Disc. Corp., 738 F. Supp. 2d 1047, 1060 (C.D. Cal. 2010)

(granting summary judgment on unjust enrichment claims asserted under California law

where binding and enforceable agreements between the parties exist). Therefore, the

parties’ claims for unjust enrichment fail as a matter of law.13

E. CAO Group’s Permanent Injunction Claim

CAO Group asserts a claim for “Permanent Injunction,” seeking an order

“enjoining DenMat from manufacturing, selling, distributing or otherwise

commercializing the Products.” Countercl. ¶ 112. Though not specifically addressed by

the parties, the Court notes that “an injunction is a remedy, not a cause of action.”

Roberts v. Los Angeles Cty. Bar Assn., 105 Cal. App. 4th 604, 618 (2003). A permanent

injunction is “a determination on the merits that a plaintiff has prevailed on a cause of

action for tort or other wrongful act against a defendant and that equitable relief is

appropriate.” Benasra v. Mitchell Silberberg & Knupp, 96 Cal. App. 4th 96, 110 (2002).

Because triable issues regarding CAO Group’s claims for relief remain, the Court

declines to adjudicate CAO Group’s request at this time.14

13 During oral argument, counsel for DenMat asserted that, although styled as a claim

for unjust enrichment, DenMat seeks relief pursuant to the California common law

doctrine of “money had, money received.” The Court reserves judgment as to whether

it would be unduly prejudicial to CAO Group for DenMat to assert this theory.

Accordingly, the grant of summary judgment as to the claim for unjust enrichment is

without prejudice to DenMat seeking leave to add a claim based on money had and

received or a similar continuous count.

14 See Tater-Alexander v. Amerjan, No. 1:08-CV-00372 OWW, 2011 WL 319012, at

*12 (E.D. Cal. Jan. 28, 2011) (finding that where other causes of action raise triable

CIVIL MINUTES – GENERAL ‘O’

Case No.  2:18-cv-06358-CAS(JEMx) Date  August 19, 2019

Title  DEN-MAT HOLDINGS, LLC v. CAO GROUP, INC.

V. CONCLUSION

For the foregoing reasons, the Court GRANTS, in part, and DENIES, in part,

DenMat’s motion for partial summary judgment. Specifically, the Court GRANTS

DenMat’s motion with respect to CAO Group’s sixth claim for unjust enrichment. The

Court otherwise DENIES the motion.

The Court GRANTS, in part, and DENIES, in part, CAO Group’s motion for

partial summary judgment. Specifically, the Court GRANTS CAO Group’s motion with

respect to DenMat’s second claim for unjust enrichment. The Court otherwise DENIES

the motion.

IT IS SO ORDERED.

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Initials of Preparer                           CMJ