Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-00222/USCOURTS-cand-3_04-cv-00222-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition For Removal--Other Contract

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United States District Court

For the Northern District of California

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 The Court shall cite to AtomicPark’s motion for partial summary judgment as “Mot.,”

Coremetrics’ opposition to AtomicPark’s motion as “Opp’n” and AtomicPark’s reply to Coremetrics’

opposition as “Reply.”

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

COREMETRICS, INC., a Delaware

corporation,

Plaintiff,

v.

ATOMIC PARK.COM, LLC, a/k/a

ATOMICPARK.COM, and DOES 1 though

20, inclusive,

Defendants.

___________________________________/

No. C-04-0222 EMC

ORDER DENYING DEFENDANT’S

MOTION FOR PARTIAL SUMMARY

JUDGMENT ON THE ISSUE OF

DAMAGES

(Docket No. 58)

Plaintiff Coremetrics, Inc. brought this action against Defendant AtomicPark, LLC in

California state court alleging, inter alia, breach of contract. Subsequently, AtomicPark removed

the action to this Court on the basis of diversity jurisdiction. See 28 U.S.C. § 1441(b). Pending

before the Court is AtomicPark’s motion for partial summary judgment on the issue of damages

should Coremetrics prevail in the liability phase of this case.1

 The issues to be decided are (1)

whether the parties’ contract bars Coremetrics from recovering lost profits as direct damages and (2)

whether Coremetrics is limited to recovery of actual losses.

Having considered the parties’ briefs and accompanying submissions, as well as the oral

argument of counsel, the Court hereby DENIES the motion.

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2 Based on the parties’ papers (including evidence submitted therewith), it is not clear what the

exact date of the contract was. For purposes of the motion for partial summary judgment, however, the

exact contract date is immaterial.

2

I. FACTUAL AND PROCEDURAL BACKGROUND

Coremetrics is a Delaware corporation, authorized to do business in California. See

Compl. ¶ 1. According to Coremetrics, it is “the leading provider of Web analytic services[,]

[helping] companies increase their eBusiness profitability by capturing and analyzing all online

visitor and customer interactions.” Id.

AtomicPark is a Wisconsin corporation with its principal place of business in Wisconsin. 

See Not. of Removal ¶ 3. AtomicPark is in the business of selling computer software over the

Internet. 

At some point in time, Coremetrics and AtomicPark entered into an integrated, written

agreement.2 The contract stated that Coremetrics would provide AtomicPark with certain internet

services for $8,000 per month (for twelve months) plus a one-time $5,000 “implementation fee.” 

The total contract price was $101,000. The contract contains a choice-of-law provision, stating in

full that “[t]he Agreement is governed in all respects by the laws of the State of New York without

giving effect to its conflict of laws principles.” See Mot., Ex. 3. The contract also contains a

“Limitations on Damages” clause which states in pertinent part: 

IN NO EVENT SHALL EITHER PARTY BE LIABLE

FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR

CONSEQUENTIAL DAMAGES, INCLUDING

WITHOUT LIMITATION DAMAGES FOR LOSS OF

PROFITS, LOST BUSINESS, LOST DATA, OR LOSSES

FROM INTERRUPTION, TERMINATION, OR FAILED

OPERATION OF THE INTERNET OR THIRD-PARTY

TELECOMMUNICATION SERVICES INCURRED BY

THE OTHER PARTY OR ANY THIRD PARTY,

WHETHER IN AN ACTION IN CONTRACT OR TORT,

EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE

POSSIBILITY OF SUCH DAMAGES. Except pursuant to

a party’s obligations set forth in section 7 above or for any

breach of its obligations under sections 3, 4, 6 or 9 of these

Terms and Conditions, neither party’s aggregate and

cumulative liability for damages under the Agreement shall

exceed the amount of fees paid by Client under the

Agreement.

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Id. (emphasis in original.).

It is undisputed that after initially pushing back implementation of Coremetrics’ services,

AtomicPark eventually informed Coremetrics that implementation would be delayed indefinitely due

to AtomicPark’s financial difficulties. Subsequently, Coremetrics filed this lawsuit seeking, inter

alia, recovery of the $101,000 contract price. It is undisputed that the services were never rendered. 

II. LEGAL STANDARD

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment shall be

rendered “if the pleadings, depositions, answers to interrogatories, and admissions on file, together

with the affidavits, if any, show that there is no genuine issue as to any material fact and that the

moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). An issue of fact is

genuine only if there is sufficient evidence for a reasonable jury to find for the nonmoving party. 

See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). “The mere existence of a

scintilla of evidence . . . will be insufficient; there must be evidence on which the jury could

reasonably find for the [nonmoving party].” Id. at 252. At the summary judgment stage, evidence

must be viewed in the light most favorable to the nonmoving party and all justifiable inferences are

to be drawn in the nonmovant’s favor. See id. at 255. 

Where the plaintiff has the ultimate burden of proof, it may prevail on a motion for summary

judgment only if it affirmatively demonstrates that there is no genuine dispute as to every essential

element of its claim. See River City Mkts., Inc. v. Fleming Foods W., Inc., 960 F.2d 1458, 1462 (9th

Cir. 1992). In contrast, where the plaintiff has the ultimate burden of proof, the defendant may

prevail on a motion for summary judgment simply by pointing to the plaintiff’s failure “to make a

showing sufficient to establish the existence of an element essential to [the plaintiff’s] case.” 

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

III. PARTIES’ ARGUMENTS

AtomicPark argues that it is entitled to judgment as a matter of law on the issue of damages

if Coremetrics prevails in the liability phase of this case. AtomicPark makes, in essence, three

arguments regarding the possible measure of damages: the contract price, “lost profits,” and actual

losses. 

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Regarding contract price, AtomicPark argues that Coremetrics cannot recover the full

contract price of $101,000 as a matter of California law because Coremetrics did not suffer any

damage, see Mot. at 10, and because “a plaintiff’s maximum damage recovery [is] the full contract

price less all costs that the injured party would have incurred in rendering its performance,” see Mot.

at 11. Relying on the Second Restatement of Contracts, Coremetrics argues that it is entitled to what

it bargained for: $101,000.

Regarding “lost profits,” AtomicPark makes two arguments. First, it contends that the

Limitations on Damages clause bars Coremetrics from recovering its lost profits, or “the profits or

benefits [Coremetrics] would have would have obtained by performance.” See Mot. at 11. In

response, Coremetrics asserts that, although the contract can be reasonably interpreted as barring

indirect or consequential damages, including lost profits, the contract says nothing about barring

lost profits as a measure of direct damages which flow directly from AtomicPark’s breach. See

Opp’n at 8. Second, AtomicPark argues that Coremetrics cannot recover its lost profits because it

was “exceptionally busy” with other clients, “readily inserted another client into the scheduling gap

created when AtomicPark’s implementation was rescheduled and then indefinitely deferred,” and

therefore suffered no damage. See Mot. at 4. As to this argument, Coremetrics contends that it was

not required to find a substitute transaction and “was willing and able to provide AtomicPark with

the Services at all times.” See Opp’n at 14.

Finally, regarding actual losses, AtomicPark argues that this is the only type of damages that

could be awarded. See Mot. at 6 (“Coremetrics’ damage recovery, if it prevails in the liability phase

of this case, should be measured by its actual losses, if any, from AtomicPark’s breach.”). 

Coremetrics argues that “[l]imiting Coremetrics’ recovery to out-of-pocket damages would be

contrary to well-settled contract law, whether New York or California contract law is applied.” See

Opp’n at 13. It contends it is entitled to damages measured by benefit of the bargain. 

IV. DISCUSSION

Before addressing the merits of the parties’ arguments above, the Court notes that it is

unclear which state’s substantive law governs the parties’ contract here. As mentioned above, the

contract contains a choice-of-law provision pointing to the application of New York law. However,

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whether the parties’ choice of New York law is enforceable depends on the choice-of-law rules of

the forum, i.e., California. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)

(holding that a district court in a diversity case must apply the choice-of-law rules of the state in

which it sits). That being said, the parties have only made arguments as to whether New York or

California law applies and not, for example, whether Wisconsin (where AtomicPark is incorporated

and has its principal place of business) law applies. Therefore, this Court will only consider the

application of New York or California law, and finds that, under either state’s law, the contract is

unambiguous and does not bar Coremetrics from seeking lost profits as a measure of direct damages.

A. The Limitations on Damages Clause is Unambiguous

Addressing the issue of lost profits damages first, the Court must now interpret the

Limitations on Damages clause to decide whether the contract bars Coremetrics from recovering lost

profits for direct damages. Whether language in a contract is ambiguous is a question of law to be

answered by the court. See Bethlehem Steel Co. v. Turner Const. Co., 2 N.Y.2d 456, 460 (1957)

(stating that, “where the intention of the parties may be gathered from the four corners of the

instrument, interpretation of the contract is a question of law and no trial is necessary to determine

the legal effect of the contract”); Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal.3d 903,

904 (1986) (“Whether language in a contract is ambiguous is a question of law.”). Interpretation of

an unambiguous contract is also a question of law. West, Weir & Bartel, Inc. v. Mary Carter Paint

Co., 25 N.Y.2d 535, 540 (1969) (stating that “the construction of a plain and unambiguous contract

is for the court to pass on[.]”); Abifadel v. Cigna Ins. Co., 8 Cal.App. 4th 145, 159 (Cal.App. 2d

Dist.1992) (“The interpretation of a contract is a question of law when the contract terms are

unambiguous.”). During oral argument, counsel for Coremetrics and AtomicPark both stated that

interpretation of a contract, regardless of whether it is ambiguous or unambiguous, is a question for

the court. While it is true that interpretation of an unambiguous contract is a question of law, the

Court notes that the interpretation of an ambiguous contract which requires consideration of

extrinsic evidence is a question of fact for the jury. See State v. Home Indem. Co., 66 N.Y.2d 669,

671 (1985) (“If . . . the language in the insurance contract is ambiguous and susceptible of two

reasonable interpretations, the parties may submit extrinsic evidence as an aid in construction, and

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the resolution of the ambiguity is for the trier of fact.”); Abifadel, 8 Cal. App. 4th at 159 (“The

interpretation of a contract is a question of law when the contract terms are unambiguous. However,

when extrinsic evidence is required to determine the intent of the parties to the contract, the

interpretation becomes a question of fact for the trier of fact.”).

With these principles in mind, the Court finds that the Limitations on Damages clause is

unambiguous and contemplates a bar on recovery of indirect damages, not the direct damages

Coremetrics seeks here. The clause reads “In no event shall either party be liable for any indirect,

incidental, special or consequential damages, including without limitation damages for loss of 

profits . . . .” (emphasis added.). A reasonable jury, after having read this clause, could only

conclude that Coremetrics and AtomicPark intended to bar recovery of indirect damages, of which

lost profits is just one of several possible measures. Under the plain reading of this provision, “loss

of profits” is referenced only as a subset or species of indirect damages. That the Limitations on

Damages clause bars only indirect damages is reinforced by the second sentence of Paragraph 8(b)

of the Master Services Terms and Conditions (“Terms and Conditions”), which imposes a limit on

liability for damages except for breaches of Paragraph 3, 4, 6, or 9 of the Terms and Conditions. 

Paragraph 3 provides that “[i]f Coremetrics has not received payment within said thirty (30) day

period, then Coremetrics may declare Client to be in material breach of the Agreement.” See Mot.,

Ex. 3. Thus, the entirety of Paragraph 8(b) and its limitations on damages addresses situations other

than the conventional claim for breach of contract asserted here.

Moreover, the Limitations on Damages clause plainly incorporates the longstanding and

deeply-rooted rule of Hadley v. Baxendale. 9 Ex. 341, 156 Eng. Rep. 145 (1854), which provides

that recovery for breach of contract should compensate the non-breaching party for damages which

naturally arise out of the breach and which were within the reasonable contemplation of the parties

at the time the contract was formed, i.e. direct damages. That rule is recognized under New York

and California law. See Goodstein Constr. Corp. v. City of New York, 80 N.Y.2d 366, 374 (1992)

(“Under the accepted rule of Hadley v Baxendale . . . it must be shown ‘that the particular damages

were fairly within the contemplation of the parties to the contract at the time it was made[.]”

(citations omitted); Cal. Civ. Code § 3300 (“For the breach of an obligation arising from contract,

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the measure of damages, except where otherwise expressly provided by this code, is the amount

which will compensate the party aggrieved for all the detriment proximately caused thereby, or

which, in the ordinary course of things, would be likely to result therefrom.”).

The Court reaches its conclusion -- that the Limitations on Damages clause is unambiguous

and does not by itself bar recovery of direct damages as a matter of law -- despite AtomicPark’s

proffer of extrinsic evidence to prove otherwise. In support of its argument that the parties intended

the Limitations on Damages clause to bar recovery of lost profits for direct damages, AtomicPark

offered extrinsic evidence in the form of the declaration of AtomicPark’s president, Anthony Boldin

(“the Declaration.”). Mr. Boldin stated that “I did not believe that AtomicPark would be responsible

for Coremetrics [sic] ‘lost profits’ by not going forward with the contract, as I noted language in the

Marketforce Services Agreement that specifically said (in large print) that neither party would be

responsible for the other’s lost profits in the event of a breach or a dispute.” See Boldin Decl. ¶ 6. 

For the following reasons, the Court finds that the Declaration is inadmissible extrinsic evidence

under both New York and California law and therefore irrelevant to the interpretation of the

contract.

1. New York Law on Extrinsic Evidence

Under New York law, “extrinsic and parol evidence is not admissible to create an ambiguity

in a written agreement which is complete and clear and unambiguous on its face.” W.W.W.

Associates, Inc., 77 N.Y. 2d at 163. Here, since the Limitations on Damages clause unambiguously

bars recovery of indirect damages for the reasons already stated, the Declaration is not admissible to

prove that the clause was intended instead to bar direct damages.

2. California Law on Extrinsic Evidence

Under California law, a court must consider all credible extrinsic evidence to determine

whether, in light of all the circumstances, the contract is fairly susceptible of more than one

interpretation. See Pacific Gas & Elec., 69 Cal. 2d 33, 39, 41 (1968); see also Tahoe National Bank

v. Phillips, 4 Cal. 3d 11, 22 (1971) (citing Pacific Gas & Electric and stating that “in most cases,

extrinsic evidence must be admitted provisionally in order that the court may determine if that

evidence is relevant to establish an interpretation of the instrument to which it is reasonably

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susceptible.”). If, after such provisional consideration, the court finds that the contract is fairly

susceptible of more than one interpretation, the extrinsic evidence is admitted and interpretation of

the contract is a question of fact for the jury. Abifadel, 8 Cal. App. 4th at 159.

Applying California’s two-step process here, the Court finds the Declaration fails both stages

of the analysis. First, as a threshold issue, the Declaration is not credible extrinsic evidence as

required under Pacific Gas & Electric because although Mr. Boldin states his belief that AtomicPark

would not be responsible for Coremetrics’ “lost profits” if AtomicPark breached the contract, there

is no evidence showing that Mr. Boldin communicated his belief to Coremetrics. See Pacific Gas &

Electric, 69 Cal. 2d at 39-40 (“Accordingly, rational interpretation requires at least a preliminary

consideration of all credible evidence offered to prove the intention of the parties.”); Brant v.

California Dairies, Inc., 4 Cal. 2d 128, 133 (1935) (finding, in pre-Pacific Gas & Electric case, that

defendant’s testimony as to his personal belief of what contract meant was “incompetent and

inadmissible under the parol evidence rule” absent fraud or mistake); Allen v. Smith, 94 Cal. App.

4th 1270, 1272 (Cal. App. 4th Dist. 2002) (“Contract formation is governed by objective

manifestations, not the subjective intent of any individual involved”); Midwest Television, Inc. v.

Scott, Lancaster, Mills & Atha, Inc., 205 Cal. App. 3d. 442, 457 (Cal. App. 2d Dist. 1988) (agreeing

with trial court that defendant’s subjective, undisclosed intent was immaterial to interpretation of

contract). Since there is no evidence that Mr. Boldin communicated his belief to Coremetrics, and

because California law deems a party’s subjective, undisclosed intent immaterial to the process of

contract interpretation, the Declaration is not credible extrinsic evidence having any material bearing

on the Court’s analysis here.

Even if the Declaration was found to be credible extrinsic evidence, and the Court was

therefore required under Pacific Gas & Electric to consider it provisionally to ascertain whether the

contract is fairly susceptible of more than one meaning, the Court’s conclusion -- that the only

reasonable interpretation of the Limitations on Damages clause is that the parties intended to bar

recovery of indirect, not direct, damages -- does not change. As already discussed, the Hadley

distinction between direct damages (which are typically recoverable) and indirect damages (which

are typically not recoverable) is deeply-rooted in our common law. The language of the contract is

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 Rule 7-3(d) does permit counsel to submit supplementary material”[b]efore the noticed hearing

date [to] bring to the Court’s attention a relevant judicial opinion published after the date the opposition

or reply was filed by serving and filing a Statement of Recent Decision, containing a citation to and

providing a copy of the new opinion -- without argument.” However, AtomicPark’s post-hearing

memorandum does not fall within this category of permitted supplementary material.

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plain. Therefore, the interpretation proffered by Mr. Boldin’s declaration -- that a limitation on

indirect damages could be reasonably interpreted to also mean a limitation on direct damages -- is

not one to which the contract here is fairly susceptible. It would be nonsensical to conclude, as

AtomicPark would have it, that the parties intended to bar recovery of lost profits for direct

damages. If that were the case, and Coremetrics had rendered services to AtomicPark and

AtomicPark never paid for them, Coremetrics could then be contractually barred from recovering its

lost profits. Thus, even provisionally considering the Declaration, the Limitations on Damages

clause is fairly susceptible to only one meaning: it is a bar on indirect, not direct, damages. 

As a final matter, the Court notes that after the November 22, 2005 hearing on this motion,

AtomicPark filed a post-hearing memorandum arguing that “[t]he question then is whether the

contract is reasonably susceptible of more than one meaning when viewed from the perspective of a

reasonable objective business person in AtomicPark’s shoes, i.e., can it reasonably be read to

exclude lost profits damages under one circumstance but not to exclude them under another?” See

Post-Hearing Mem. at 3 (“PHM”). Coremetrics filed a response objecting to AtomicPark’s

unauthorized filing of a PHM. See Plaintiff’s Response to Defendant’s Post-Hearing Mem., Docket

No. 75. The Court will not consider AtomicPark’s PHM, which was submitted without prior

approval from this Court, because it was filed in violation of Civil Local Rule 7-3(d), which

provides that “once a reply is filed, no additional memoranda, papers or letters may be filed without

prior Court approval.”3

 Even if the Court were to consider the PHM, AtomicPark cites no authority

in support of its contention that a “reasonable objective business person” standard should apply in

this case. And even if such a standard were to apply, the Court’s conclusion -- that Mr. Boldin’s

interpretation of the Limitations on Damages clause is not one to which the contract is fairly

susceptible -- would remain unchanged because Mr. Boldin’s subjective belief, as expressed in

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paragraph six of the Declaration, is objectively unreasonable in light of the longstanding rule of

Hadley.

B. Summary Judgment on the Correct Measure of Damages is Inappropriate

Next, the Court must decide whether Coremetrics is limited to recovery of actual losses in

this case. For the reasons already stated, the Limitations on Damages clause does not bar recovery

of lost profits for direct damages. AtomicPark cites no authority prohibiting Coremetrics from

recovering the benefit of the bargain as opposed to actual outlay expenditures. See Goodstein

Constr. Corp., 80 N.Y.2d at 373 (“Contract damages are ordinarily intended to give the injured party

the benefit of the bargain by awarding a sum of money that will, to the extent possible, put that party

in as good a position as it would have been in had the contract been performed.”); KGM Harvesting

Co. v. Fresh Network, 36 Cal.App.4th 376, 382 (Cal.App.6th Dist.1995) (“The basic premise of

contract law is to effectuate the expectations of the parties to the agreement, to give them the

‘benefit of the bargain’ they struck when they entered into the agreement.”). Depending on the

particular findings of fact, a reasonable jury could decide to award lost profits or actual damages. 

Moreover, in response to AtomicPark’s contention that Coremetrics suffered no damage because

Coremetrics was “exceptionally busy” with other clients, Coremetrics has submitted evidence that it

was willing at all times to provide the contracted services to AtomicPark and had the resources and

capacity to do so. See Resnick Decl. ¶ 3. Thus, there is a disputed issue of material fact on this

point. Therefore, summary judgment on the correct measure of damages is inappropriate. 

However, the Court notes that the full contract price of $101,000 is not the correct measure

of damages here. Coremetrics argues that it is entitled to recover the contract price because it

expected to receive $101,000 from this transaction and, according to the Restatement Second of

Contracts, “the goal of contract damages is to make the non-breaching party whole by providing

them with their expectation damages.” See Opp’n at 12. The Court rejects this argument because it

fails to recognize that by awarding Coremetrics the full contract price without also deducting

expenses saved as a result of AtomicPark’s breach, Coremetrics would be made more than whole;

Coremetrics would recover more money than it could have expected to make had the contract been

fully performed. See Restatement Second of Contracts § 344 (defining “expectation interest” as the

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plaintiff’s “interest in having the benefit of his bargain by being put in as good a position as he

would have been in had the contract been performed[.]”). Had the contract been performed,

Coremetrics would have incurred some costs; those costs need to be accounted for in determining

lost profits.

Therefore, the most Coremetrics would be entitled to recover as damages here would be its

lost profits, measured by the difference between the contract price and the expenses Coremetrics

would have incurred had it performed. At oral argument, counsel for Coremetrics stated that it had

not yet disclosed to AtomicPark its lost profits damage calculation pursuant to its obligation to do so

under Rule 26(a)(1)(C) of the Federal Rules of Civil Procedure. To the extent this Rule 26

disclosure has not been made, Coremetrics is hereby ordered to make such disclosure within twenty

days of the date of this order.

V. CONCLUSION

For the foregoing reasons, the Court denies AtomicPark’s motion for partial summary

judgment on the issue of damages. A genuine dispute exists in this case as to the correct measure of

damages. Furthermore, Coremetrics must disclose its lost profits damages calculation to

AtomicPark pursuant to Rule 26(a)(1)(C) within 20 days.

This order disposes of Docket No. 58.

IT IS SO ORDERED.

Dated: December 7, 2005

 EDWARD M. CHEN

United States Magistrate Judge

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