Segue Electronics v. Phihong USA

Filed 5/27/10 Segue Electronics v. Phihong USA CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

APPEAL from a judgment of the Superior Court of Los Angeles County, Robert L. Hess, Judge. Affirmed.

Susman Godfrey, Stephen E. Morrissey, Suyash Agrawal (Pro Hac Vice), Kalpana Srinivasan, and Ryan C. Kirkpatrick for Plaintiffs and Appellants.

Shuai & Associates, Yee-Horn Shuai, and John A. Tkach for Defendants and Respondents.

Plaintiffs Segue Electronics, Inc., and Shine Capacitors, LLC (jointly, Segue) sued defendants Phihong USA Corp. and Phihong Technology Co., Ltd. (jointly, Phihong) for intentional interference with contract. After the close of evidence at trial, Phihong obtained a directed verdict and judgment in its favor. Segue has appealed from the judgment, which we affirm.

BACKGROUND

In this appeal, Segue challenges Phihongs directed verdict, contending there was substantial evidence that it had intentionally interfered with Segues July 2004 agreement to distribute capacitors manufactured by defendant Anhui Juan Kuang Electric Co., Ltd. (Anhui JK). In the same trial, Segue won a $3.9 million jury verdict against Anhui JK for breaching the July 2004 agreement. Neither Anhui JK nor its affiliates, defendants JK Yaming International Holdings LTD. (JK Yaming) and Fujian Juan Kuang Yaming Electric Ltd. (Fujian JK) are parties to this appeal.^[1]

Kevin Yang, a vice president of a Phihong subsidiary, introduced JK to Segue and was present for the negotiations of the July 2004 agreement. At that time, Phihong owned 19 percent of JK Yamings stock, one of its officers was a member of its board of directors, and Phihong was a major distributor of JKs capacitors in the United States.

Under the July 2004 agreement, Segue became the exclusive territory distributor for the Americas of JKs capacitors. Notwithstanding the term exclusive territory distributor, the July 2004 agreement did not give Segue exclusive distribution rights. The July 2004 agreement specifically excluded JKs five major customers (GE, Lithonia, Cooper, Fedders, and Hubbell) from the scope of the agreement. As Segue acknowledges in its opening brief, when the July 2004 agreement was formed, Phihong was one of the JK Defendants major distributors, servicing the major accountssuch as GE, Lithonia, and Hubbellthat had been carved out of the July Agreement.

JK and Segue contemplated that they would form a second agreement if Segues performance was satisfactory. During the latter part of 2004, JK and Segue signed, in Chinese, an Agreement of Cooperation (the second agreement). The second agreement differed from the July 2004 agreement in that it granted Segue an equity interest in Anhui JK and required Segue to provide technical support to JKs capacitor plant in China.

With regard to Segues distribution rights, the second agreement contained the following exclusivity provision, which we have taken from the official translation submitted at trial: The region [Segue] is authorized to act as JKs sales representative is North America, for which JK shall contract and appoint [Segue] as its general representative. Upon the signing of this agreement, JK should discuss and coordinate with its relevant customers in order that these customers will be managed by [Segue] as soon as possible, and efforts will be made to accomplish in less than six months.

However, a prior translation of the second agreement (Segues translation) was prepared by Segue and approved by its president Chris Chen. JK and Phihong received a copy of Segues translation in late 2004. According to Segues translation, the exclusivity provision stated that Segue was the authorized soleterritory sales representative anddistributorforNorth America, responsible forselling JKscapacitor products to the customers headquartered and having operations in North America, including JKs existing customers and customers who are being developed or plan to be developed. JK will contact their existing customers immediately after the signing of this agreement, and have them deal through [Segue] and to be managed by [Segue] as soon as possible, and not to exceed the next six months. (Italics added.)

Phihong became concerned that, according to Segues translation, it would immediately be required to submit to Segues management all of its capacitor sales. Phihongs chairman and chief executive officer Peter Lin objected to JK Yamings executive director Chen Min that Segues translation of the exclusivity clause would create a major hindrance to my companys sales of your companys products in the U.S. and will be extremely unreasonable to my company.

In response to Lins objection to Segues translation of the exclusivity clause, Chen Min stated in an email to Lin: As I said clearly in the past, electrode-less light sales in North America will be decided after consultation with you. Whether Phihongs capacitor sales is to be handed over to Segue will also be through consultation by the three parties, and it has not been decided that this will change hands in six months. Phihongs consent is required before it can be transferred to Segues management, and the price will be the price JK provided to Segue. By email, Chen Min also assured Lin that JK would fully respect Phihongs opinion and protect Phihongs interests in dealing with Segue.

At trial, Chen Min, whose native language is Chinese, testified that his assurances to Phihong regarding the exclusivity clause were based on the signed Chinese version of the second agreement. Chen Min testified that he had informed Lin that JK would not sign an English version that did not correspond with the signed Chinese version. The record is undisputed that JK, in deference to Phihongs objections, did not sign Segues translation.

On January 20, 2005, Phihong and JK discussed the formation of a joint venture for the sale of JKs products, including capacitors, in North America.

On January 30, 2005, Phihong, Segue, and JK met in Shanghai. During the meeting, Lin stated that Phihong wished to sell JKs capacitors in North America. Chris Chen stated that Segue would not give up its exclusive distribution rights.

Following the January 30 meeting, Chen Min prepared a summary of the items that, in his view, had been agreed upon at the January 30 meeting. The meeting summary, which we have paraphrased, stated as follows: (1) Phihong acknowledged the importance of obtaining Segues technical support to improve the quality of JKs capacitors, and agreed that Segue would manage the sales of JKs capacitors in North America. If Phihong makes independent sales in North America, Segue will provide Phihong with capacitors at the prices sold by JK, and will provide after-sale services, for which JK will pay a 4 percent service fee. (2) Phihong has many existing customers for lighting products in North America. The lighting capacitors used in JKs OEM (original equipment manufacturing) products that are introduced into North America by Phihong are not independent sales of capacitor products, and the bundling of those capacitors will be handled by JK. (3) All three parties hope for an improvement in the quality of JKs capacitors and will work to maximize JKs market share in North America. In conducting their sales, Segue and Phihong may use the trademarks agreed upon with their customers. Problems in operations should be resolved through friendly negotiations.

Chen Min emailed the meeting summary to Chris Chen and requested that he indicate his agreement by reply email. In a reply email, Chris Chen stated: I remember that the consensus reached at the last meeting was for unifying the market system. The advantage of Segues being the sole agent has been reconfirmed. Except for the plan to bundle, Phihong has abandoned the idea of selling solely JK lighting capacitors in the U.S. Thus our agreement has been confirmed. JK has no intention to look for a second sales company and Segue will not compete by selling lighting capacitors of a second company.

Chen Min viewed the above reply as an expression of Chris Chens assent to the meeting summary. Based on the belief that a consensus had been reached as to their joint venture, Phihong and JK continued to plan to sell JKs products, including capacitors, in the United States. In April 2005, Phihong and JK promoted their joint venture plans at an industry fair in New York.

At some point after the January 30 meeting, JK became dissatisfied with Segues failure to provide the technical support that was required under the second agreement. In particular, JK was unhappy that Dr. Martin Hudis, a capacitor expert, had not visited JKs plant in China notwithstanding JKs payment of his fees as required by the agreement. At about the same time, Segue became dissatisfied because of problems in obtaining quotes, samples, and technical support fees from JK.

On May 24, 2005, JK sent Segue a letter terminating the second agreement, stating: Due to [the fact] that Dr. Martin [Hudis] is not able to come to work in our factory pursuant to the time that we requested in the cooperation between your company and us on the lighting capacitor business (Section 4 of the technical support), we hereby formally notify your company that the cooperation agreement between the two parties will be terminated effective this month. As for the winding-up work of the cooperation agreement and other issues concerning the two parties, we expect you to set specific appointment with us for renegotiation on the supplemental amendment to the agreement.

In June 2005, Segue filed a complaint for breach of contract against JK and for intentional interference with contractual relations against Phihong. After the suit was filed, Phihong and JK put aside their joint venture plans.

Anhui JK filed a cross-complaint against Segue for fraud by intentional misrepresentation, based on Segues allegedly false promise to provide technical support to its capacitor plant in China. Anhui JK sought to recover as damages the $40,000 in technical support fees that had been paid under the second agreement.

After the close of evidence at trial, Phihong moved for a directed verdict on Segues claim for intentional interference with contract, which is the subject of this appeal. In support of the motion, Phihong argued that the evidence failed to support a finding of either intent to interfere with Segues signed contracts or causation. Phihong argued in part that because its objections to Segues distribution rights were aimed solely at an inaccurate translation of the second agreement that was never signed, and because the January 30 meeting would not have occurred in the absence of that inaccurate translation, Phihong could not have interfered or intended to interfere with Segues signed contracts.

The trial court granted the motion for directed verdict, stating in its written order: The court, having considered the evidence and arguments presented at the hearing including briefs submitted in support of and in opposition to the motion, and being fully advised in the premises, finds that the motion for directed verdict shall be granted on the grounds that, disregarding conflicting evidence and giving to plaintiffs evidence all the value to which it is legally entitled, including all reasonable and logical inferences that may be drawn from that evidence, as a matter of law, there is no substantial evidence to support a verdict for plaintiffs on the intentional interference with contractual relationship cause of action asserted herein, and specifically on numbers 3 [defendant intended to disrupt performance of the contracts], 4 [defendants conduct prevented performance or made performance more expensive or difficult] and 6 [defendants conduct was a substantial factor in causing plaintiffs harm] of the CACI 2201 jury instruction; and thus, such evidence is wholly insufficient to warrant submission of the case to the jury.^[2]

With regard to the July 2004 agreement, which is the only contract at issue on appeal, the jury found that: (1) the July 2004 agreement was a binding contract between Segue and Shine, on the one hand, and Fujian JK and Anhui JK, on the other; (2) Fujian JK and Anhui JK had breached the July 2004 agreement; (3) the breach was not excused by unilateral mistake or fraud; and (4) Segue and Shine had suffered damages of $3.9 million as a result of Anhui JKs breach (but suffered no damages as a result of Fujian JKs breach).

With regard to the second agreement, which is not at issue on appeal, the jury determined that Anhui JK had breached the contract, but that the breach was excused by Segues fraud. As to Anhui JKs cross-complaint against Segue and Shine for fraud by intentional misrepresentation, which is not at issue on appeal, the jury awarded Anhui JK $40,000 in damages for fraud.

Segue timely appealed from the judgment in favor of Phihong.

DISCUSSION

Given that Segue did not prevail on its claim for breach of the second agreement, Phihong is not liable, as a matter of law, for intentional interference with that agreement and Segue does not contend otherwise. Phihongs liability, if any, is necessarily limited to its alleged interference with the July 2004 agreement, which the jury found had been breached by Anhui JK and Fujian JK. Accordingly, the sole issue on appeal is whether the trial court erred in granting Phihong a directed verdict as to the July 2004 agreement. For the reasons that follow, we conclude that the motion was properly granted.

A directed verdict may be granted, when, disregarding conflicting evidence, and indulging every legitimate inference which may be drawn from the evidence in favor of the party against whom the verdict is directed, it can be said that there is no evidence of sufficient substantiality to support a verdict in favor of such party . . . . (Newing v. Cheatham (1975) 15 Cal.3d 351, 358-359.) On appeal from a judgment based on a directed verdict in favor of the defendant, we review the evidence in the light most favorable to the plaintiff, resolving all conflicts and drawing all inferences in its favor and disregarding conflicting evidence. (Colbaugh v. Hartline (1994) 29 Cal.App.4th 1516, 1521; Gouskos v. Aptos Village Garage, Inc. (2001) 94 Cal.App.4th 754, 758.) We must reverse the judgment if substantial evidence exists that would tend to prove each of the elements of the plaintiffs case. (Heller v. Pillsbury Madison & Sutro (1996) 50 Cal.App.4th 1367, 1392-1393.) However, a mere scintilla of evidence does not create a conflict for the jury's resolution; there must be substantial evidence to create the necessary conflict. (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291.) (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1119-1120.)

As stated by our high court, the elements of a cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendants knowledge of this contract; (3) defendants intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage. (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.) (Savage v. Pacific Gas & Electric Co. (1993) 21 Cal.App.4th 434, 448.)

In this case, the trial court granted a directed verdict based on insufficient evidence of the following elements of Segues claim for intentional interference with contract: (1) that Phihong intended to disrupt the performance of the July 2004 agreement; (2) that Phihongs conduct prevented JKs performance or made JKs performance of the July 2004 agreement more expensive or difficult; and (3) that Phihongs conduct was a substantial factor in causing Segues harm. Segue contends that in making the above findings, the trial court misstated points of law and resolved fact questions that should have been reserved for the jury.

In resolving this appeal, we will assume the following facts are true: (1) the July 2004 agreement was a valid contract; (2) Phihong was aware of the July 2004 agreements existence;^[3]and (3) the July 2004 agreement was breached by Anhui JK, resulting in $3.9 million in damages to Segue.

Segue argues that a jury must decide whether Phihong intentionally interfered with the July 2004 agreement because [t]he evidence at trial showed plainly that Phihong repeatedly conveyed its desire to influence the JK Defendants not to honor the exclusivity provisions in their contracts with Segue and to instead (a) allow Phihong to continue to market capacitors in North America and (b) enter into a joint venture with Phihong to sell capacitors in North America.

I. Phihongs Objections to Segues Translation

Allegedly, Phihongs contractual interference began when it objected to Segues translation of the second agreements exclusivity clause, which, the record shows, differed from the official translation presented at trial. The evidence established that Phihongs objections were directed at Segues translation of the exclusivity clause, which was never signed, and we are unaware of any conflicting evidence on that point.

Phihongs interference with an exclusivity clause in an unsigned translation would not support a claim for intentional interference with contract unless the clause was incorporated into a binding contract. Given that Segue never obtained a binding contract with the exclusivity clause found in Segues translation, Phihongs objection to that clause cannot be said to have caused the failure of a binding contract and Phihong cannot be liable for intentional interference with contractual relations on that basis. (See PM Group, Inc. v. Stewart (2007) 154 Cal.App.4th 55, 65 [singer and his agents not liable for intentional interference with contractual relations because the plaintiff never entered into a binding contract for the singers performance].)

II. Phihongs Pursuit of a Joint Venture

Allegedly, Phihongs contractual interference continued when it pursued its joint venture with JK to sell capacitors, thereby influencing JKs decision to breach the July 2004 agreement. According to Segue, the joint ventures proposed sales of JKs capacitors, either as bundled sales of JKs OEM products or as individual sales, were barred by the exclusivity provisions of the July 2004 agreement.

There are at least two problems with this contention. First, the July 2004 agreement did not mention the bundled sales of JKs OEM products. And, according to item 2 of the meeting summary, the parties had agreed at the January 30 meeting to allow the joint venture to conduct bundled sales of JKs OEM products. In our view, Chris Chens reply to the meeting summary (Except for the plan to bundle, Phihong has abandoned the idea of selling solely JK lighting capacitors in the U.S.) did not raise an objection to the bundled sales of JKs OEM products.

And second, the record is unclear whether the joint venture would have included the individual sales of JKs capacitors. At the hearing on the motion for directed verdict, the trial court inquired if there was any evidence of Phihongs intent to sell stand alone capacitors as part of the joint venture. When Segues counsel responded that the joint venture would include the sale of capacitors, the trial court referred to the lack of evidence that a joint venture agreement [had been] reached either as to products . . . or structure. Segues counsel replied that exhibit 45 contained the plans for the joint venture, to which the trial court pointed out that the record did not contain a translation of exhibit 45. We have reviewed the exhibit and, like the trial court, are unable to ascertain its meaning.

The major difficulty that Segue faces is that the exhibits and testimony cited in its opening brief do not explain whether the joint venture was to include the individual sales of capacitors in violation of the July 2004 agreement. The mere fact that the joint venture was to include the sale of capacitors does not indicate whether the capacitors would be sold in a bundled condition as reflected in the meeting summary, or whether the capacitors would be sold on an individual basis to the five companies excluded from the July 2004 agreement, or whether the capacitors would be sold in violation of the July 2004 agreement. Accordingly, the evidence is insufficient to support a finding that Phihongs pursuit of a joint venture constituted an intentional interference with the July 2004 agreement.^[4]

III. The Pressure Exerted by Phihong

Segue contends that the pressure exerted by Phihong to make individual sales was a substantial factor in JKs decision to breach the July 2004 agreement. Segue argues that because Phihong held 19 percent of JK Yamings stock and held a seat on its board of directors, it is reasonable to infer that JKs decision to breach the July 2004 agreement was influenced by Phihongs request to sell individual capacitors. We are not persuaded.

According to the undisputed evidence, the January 30 meeting was held to address Phihongs concerns regarding Segues translation of the exclusivity clause, which, if signed, would have required Phihong to submit to Segues management of its individual sales, including any sales to the five customers excluded from the July 2004 agreement. Viewed in that context, the fact that Phihong sought to sell individual capacitors does not indicate whether Phihong was seeking to expand the number of customers that were excluded from the July 2004 agreement, or whether it was merely attempting to maintain control over its existing accounts, which would not have violated the July 2004 agreement. Given the speculative state of the evidence, the causal link between the pressure exerted by Phihong and JKs breach of the July 2004 agreement is too tenuous to support the inference urged by Segue. (Nally v. Grace Community Church, supra, 47 Cal.3d 278, 291 [mere scintilla of evidence does not create a conflict for the jurys resolution; there must be substantial evidence to create the necessary conflict].) We conclude that the evidence fails to show that the pressure exerted by Phihong to sell individual capacitors played a causal role in JKs decision to breach the July 2004 agreement.

DISPOSITION

The judgment is affirmed. Phihong is awarded its costs.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

SUZUKAWA, J.

We concur:

EPSTEIN, P.J.

WILLHITE, J.

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^[1] The jury also found that Fujian JK had breached the July 2004 agreement, but awarded no damages against Fujian JK.

Defendant JK Yaming was not involved in the trial because, at that point, it had prevailed on a summary judgment motion against Segue. We reversed the summary judgment in a prior appeal and remanded for further proceedings. (Segue Electronics, Inc. v. JK Yaming International Holdings, Ltd. (Apr. 8, 2009, B204326) [nonpub. opn.].) According to the opening brief, the matter has yet to be tried against JK Yaming.

^[2] CACI No. 2201 provides: [Name of plaintiff] claims that [name of defendant] intentionally interfered with the contract between [him/her/it] and [name of third party]. To establish this claim, [name of plaintiff] must prove all of the following: [] 1. That there was a contract between [name of plaintiff] and [name of third party]; [] 2. That [name of defendant] knew of the contract; [] 3. That [name of defendant] intended to disrupt the performance of this contract; [] 4. That [name of defendant]s conduct prevented performance or made performance more expensive or difficult; [] 5. That [name of plaintiff] was harmed; and [] 6. That [name of defendant]s conduct was a substantial factor in causing [name of plaintiff]s harm.

^[3] Phihong argues in its respondents brief that the evidence fails to show that it was aware of the July 2004 agreements existence. We are not persuaded. The evidence clearly showed that Yang, a vice president of a Phihong subsidiary, was aware of the agreements existence and that the agreement was discussed by Phihongs personnel.

^[4] At oral argument, Segues counsel stated that exhibits in evidence, a chart purporting to outline the corporate structure of the joint venture and a business plan drawn by Phihong, proved that Phihong and JK were planning to sell individual capacitors in violation of the July agreement. Not so. The chart of the corporate structure was nearly indecipherable, as it was in English and a language we assume was Chinese. It offered nothing to support Segues view that Phihong was seeking to convince JK to breach the July agreement. Although the business plan stated that Phihong planned to control North American Sales of JK products for the lighting market in coordination with Phihong Ballast Division Sales, the plan did not identify which JK products were involved. As Segue conceded, the July agreement did not bar Phihong from selling bundled packages that included capacitors or other JK products. It was precluded only from selling individual capacitors in the North American territory where Segue was the exclusive distributor.