N O T FO R PUB L ICAT IO N UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT
PAB B AN DEVELOPM E NT, INC ., e t a l

Pla intiff-c ounte r-de fe nda nts - Appe lle e s, v. KYPHON SARL,

De fe nda nts-c ounte r - c la im ants- Appe lla nts. Nos. 14-56465, 14-56696

D.C
. No. 8:10-c v-533-B R O-R NB
M E M O RANDUM *

Appe a ls from

the Unite d State s Distric t C o urt for the C e ntra l Distric t of C a lifornia B e ve rly R e id O’ C onne ll, Distric t Judge , Pre siding Argue d an d Subm itte d August 31, 2016 1 Pa sa de na , C a lifornia B e fore : TASHIM A a

nd B YB EE, C irc uit Judge s , a nd ZIPPS,** Distric t Judge
.



# FIL ED N OV 16 2016 M OLLY C. DW Y ER, CLERK U
. S. CO URT O F APPEALS

1 * T his disposition is not a ppropria te for public a tion a

nd is not pre c e de nt e xc e pt a s provide d

by 9th C ir. R . 36-3.

** T he Honora

ble Je nnife r G. Zipps, Unite d State s Distric t Judge for the Distric t of Ariz ona , sitting by de signa tion.Appe lla nt Ky phon Sa rl (“ Ky phon” ) a ppe a ls a jury ve rdic t in fa

vor of Pa bba n De ve lopm e nt, Inc
. (Pa

bba n). The a c tion a

rise s from a dispute be twe e n the pa

rtie s re ga rding Ky phon’ s purc h a se of a

m e dic a l de v ic e , the Natrix Sy ste m , from Pa bba n. Ky phon c la im e d the Natrix Sy ste m wa s de fe c tive and re fuse d to c ontinue its pa ym e nts to Pa

bba n. Pa bba n file d a n a c t ion a ga inst Ky

phon in Ora

nge C o unty Supe rior C ourt in M arc h 2010; the a c tion wa s re m ove d to fe de ra l distric t c ourt pursua nt to 28 U.S.C . §§ 1331 a nd 1441. Thepa

rtie s a l le ge d c ross-c la im s for bre a c h of c ontra c t

/ bre a c h of wa

rra nty . The jury

found tha

t Ky phon bre a c h e d its purc ha se c ontra c t with Pa bba n, but tha t Pa bba n did not bre a c h its wa

rra nty of
m e rc ha nta bility to Ky phon. Ky phon a rgue s on a

ppe a l tha t the distric t c ourt e rrone ously

de nie d Ky

p hon’ s m otions for judgme nt a s a m a tte r of la w, e rrone ously de nie d Ky

phon’ s m otion for ne w tria l , im prope rly instruc te d the jury

re ga rding the
warra nty provisions of the c ontra c t, a

nd im prope rly aw arde d attorne y ’ s fe e s to Pa bba n . W e a ffirm
. The distric t c ourt’ s inte rpre tation of thete rm “ knowle dge ” in Se c tion 3.16 of the pa rtie s ’ Asse t

Purc ha se Agre e m e nt (APA) wa s not le ga l ly e rrone ous suc h tha

t Ky phon is e ntitle d

to judgm e nt a s a

m a tte r of la

w or a ne w tria l. The distric t c ourt inte rpre te d the APA’ s wa rra n ty of m e rc ha

nta bility to a pply if none of Pa

bba n’ s ke y pe rsonne l we re in posse ssion of a ny knowle dge that the Natrix Sy ste m wa s not of good e nough qua lity

to be sold. Thedistric t c ourt’ s jury instruc tion on the

issue of
2knowle dge re lie d on its Februa ry 14, 2014 interpre tation of theAPA. In its August 8, 2014 Orde r de ny ing Ky phon’ s re ne we d m otion for judgme nt a s a m a tte r of la

w and m otion for ne w tria l, the distric t c ourt re lie d on its Februa ry 14, 2014 minute
e ntry and jury instruc tion, in c onc luding tha t the re wa s suffic ie nt e vide n c e to support thejury ’ s ve rdic t. The distric t c ourt’ s inte rpre tations of theAPA in the Fe brua ry 14, 2014
m inute e ntry , the jury

instruc tion a

nd the August 8, 2014 Orde r we re c o nsiste nt with e a c h othe r and we re not c ontra ry to De la ware la w. Ky phon’ s a rgum e nt tha

t, unde r De la

ware la w, the wa rranty is only satisfie d whe n a ll thre e ke y pe rsonne l posse ss a ffirm a t ive knowle dge tha t the produc t is of good e n ough qua lity to be sold, is not supporte d by

a pplic a b le la w a nd is c ontra

ry to the holdings in Pric e Autom otive Group v. Da

nne m ann, 2002 WL 31260007, *7 (De l. Supe r. C t. Se pt. 25, 2002) a

nd C e nt. M ortga ge C o. v. M orga n Sta nle y M ortga ge C a

pita l Holdings LLC , 2012 W L 3201139, a t *9 n.69 (De l. C h . Aug. 7, 2012). The distric t c ourt’ s inte rpre tation of the“ knowle dge ” te rm doe s not re nde r c ontra c tua l wa rra ntie s worthle ss by

pe rm itting wa

rra n tors to purpose fully

re m a in uninform e d a

b out de fe c ts in the produc t. The la w provide s a

prote c tion a ga inst tha

t outc om e in the form of a pa rty ’ s a bility to re que st a

jury instruc tion on this “ ostric h a pproa c h” if
e vide nc e s ugge s ts tha

t the s e l le r de libe ra te l y a voide d knowle dge tha

t the produc t wa s not m e rc h anta

b le
. Se e DC V Holdings, Inc . v. C ona gra , Inc ., 2005 W L 698133,

3a t *10–12 (De l. Supe r. M ar. 24, 2005), aff’d , 889 A.2d 954 (De l . 2005). For the se

re a sons, the distric t

c ourt’ s jury

instruc tion did not unfa

irly pla c e the burde n on Ky phon to a ffirm a tive ly

prove tha t He rbe rt, Gre e n, a

nd Sta rk a ffirm a tive ly

kne w that the Natrix Sy ste m

wa s not of good e nough qua lity to be sold. B e c a

use the re wa s no le ga l e rror in the distric t c ourt’ s inte rpre tat ion of the te rm “ knowle dge ” in Se c tion 3.16 of the

APA, Ky phon is not entitle d

to re ve rsa l of the distric t

c o urt’ s de nia l of Ky

phon’ s first m o tion for judgm e nt a s a m a tte r of la

w or the distric t c ourt’ s de nia l of Ky

phon’ s re ne w e d

m otion for judgme nt a s a m a tte r of la

w, a lte rna tive ly

m otion for a

ne w tria l, on this ground. Ky phon is not entitle d to judgm e nt a s a m a tte r of la

w or a ne w tria l ba se d on its c la im tha t insuffic i e nt e vide nc e supporte d the jury ’ s ve rdic t. Ky

phon c onte nds that, e ve n if the distric t c ourt c orre c tly inte rpre te d Se c t ion 3.16’ s wa rra nty of
m e rc ha nta bility to a p ply if none of Pa

bba n ’ s ke y pe rsonne l we re in posse ssion of
any knowle dge tha

t the Nat rix Sy ste m wa s not of good e nough qua lity to be sold, the e vide nc e a t tria l wa s insuffic ie nt to de m o nstra te tha t Pa bba n c om plie d with its
warra nty obliga

tions. As a

thre s hold m a tte r, this c la im by Ky p hon pre s e nts a se pa ra t e c h a lle nge to the distric t c ourt’ s inte rpre tation of thewa rra nty of
m e rc ha nta bility in its August 8, 2014 Orde r. Ac c o rding to Ky

phon, the te rm

“ of
m e rc ha nta ble qua lity ,” whic h the distric t c ourt de fine d in its Feb ruary

14, 2014
m inute e ntry

to m e an “ of good e nough qua lity to be sold,” should befurthe r
4inte rpre te d to m e a n “ of good e nough qua l ity

to be sold c om

m e rc ia lly to Ky

phon’ s c ustom e rs, ie
. phy s ic ia

ns.” The distric t c ourt wa s not c onfronte d with the issue of who the Na t rix Sy ste m wa s be ing sold to within the m e a ning of the APA until Ky phon file d its re ne we d
m otion for judgme nt a s a

m a tte r of la

w, a nd a lte rna tive ly

m otion for a

ne w tria l. The distric t c ourt prope rly c onc lude d tha

t the re is a

diffe re nc e be t

we e n the qua lity of a produc t and its “ c om

m e rc ia bility ” and tha

t in Se c t ion 3.16, Pa

b ba n wa s warra nty i ng tha

t the Natrix Sy ste m

wa s of good e nough qua lity to be sold by Pa bba n to Ky phon, not tha

t the Na trix Sy ste m

wa s of good e nough qua lity to be sold on the

ope n m arke t. This interpre tation is logic a l in light of the unc ontrove rte d
e vide nc e re ga

rding the N atrix Sy ste m ’ s de ve lopm e nta l sta ge a t the tim e the APA
wa s signe d. It a

ppe ars undispute d tha

t both pa rtie s kne wa t

c l osing tha

t the Natrix Sy ste m c ould not besold c om

m e rc ia lly to phy s ic ia

n s until a ll va lida

tions, inc luding pa c ka ging va lida

tions, we re obta ine d. B e c a use both pa

rtie s a lso kne w at c losing that Ky phon did not y e t ha

ve pa c ka ging va lida

tion for the Natrix Sy ste m , Pa bba n would ha ve be e n in im

m e diate bre a c h of the wa

rra nty unde r Ky phon’ s propose d inte rpre tation, re ga

rdle ss of a

ny le a ks in the sa line ba gs. C o urt will only re ve rse the distric t c ourt’ s de c isions if it finds tha t the
e vide nc e , c onstrue d in the light m ost fa vora ble to the nonm oving pa

rty , pe rm its only one re a sona

ble c onc l u sion, a

nd tha t c onc lusion is c ontra

ry to the jury ’ s ve rdic t.
5B e c a

use the distric t c ourt prope rly inte rpre te d “ o f good e nough qua lity to be sold” to m e an “ of good e nough qua lity to be sold by

Pa bba n to Ky phon,” Ky

phon is without a ny argum e nt tha

t the e v ide nc e c o m

pe lle d a diffe re nt ve rdic t. W

he n the
e vide nc e i s vie we d in the light m ost fa vora ble to Pa b ba n, the jury

wa s pre se nte d with suffic ie nt e vide nc e from whic h it c ould c onc lude tha t Pa bba n ’ s ke y pe rsonne l ha d no a c tua l knowle dge tha t the sa line ba gs we re le a

k ing due to a

n inhe re nt de fe c t in the N a trix Sy ste m – a s oppose d to a pa c ka ging issue – suc h tha t the Natrix Sy ste m wa s not fit for sa l e by

Pa bba n to Ky phon. Sim ila

rly , Ky phon ha s fa ile d to de m onstra

te tha t the distric t c ourt’ s de nia l of Ky p hon’ s a lte rna tive m otion for a ne w tria l wa s a

n a buse of disc re tion. The jury ’ s ve rdic t wa s not a ga inst thec l e ar we ight of the e vide nc e suc h tha

t the distric t c ourt should ha ve grante d a

ne wtria l. Se e Pa ssa ntino v. Johnson &

Johnson C onsum e r Prods. , 212 F.3d 493, 510 n.15 (9th C i r. Fina lly , the distric t c ourt did not err in gra nting Pa bba n ’ s post-tria l m otion for a ttorne y ’ s fe e s . Pa

bba n wa s not re quire d to submi t e vide nc e of its fe e s to the jury pursua

nt to R ule 54(d). Fe d . R . C i v. P. R ule 54(d)(2) provide s: “ A c la im for
a ttorne y ’ s fe e s a

nd re late d nonta

xa ble e xpe nse s m

ust be m a de by

m otion unle ss the substa n tive la w re quire s those fe e s to be prove d at tria l a s a n e le m e nt of da

m a ge s.” Pa bba n did not de m o nstra

te tha t De la ware la w – the substa

ntive la w gove rning the pa rtie s’ c ontra c t – re q

uire s attorne y ’ s fe e s a

warde d pursua nt to a fe e -shifting
6provision of a c ontra c t to be prove n at tria l a s a n e le m e nt of da

m a g e s. Although De la ware c ourts ha

ve not dire c tly

a ddre sse d this issue , c a se la w sugge sts tha

t
a ttorne y ’ s fe e s a

warde d pursua

nt to a fe e -shifting provision of a c o ntra c t m ay

be prove n in a

post-tria l m otion for fe e s, se pa ra te and a p art from dam a ge s prove n at tria l. Se e , e .g., Vigortone Ag Prod., Inc
. v. PM Ag Prod., Inc ., 2004 W L 1899882 (N.D. Ill. Aug. 12, 2004) (a pply ing De l aw are la

w to a post-tria l m otion for
a ttorne y s’ fe e s pursua

n t to R ule 54(d), Fe d. R . C iv. P.); 2009 C a iola Fa m i ly Trust v. PW A, LLC , 2015 W L 6007596, a t *34 (De l. C h. Oc t. 14, 2015) (dire c t ing pre va iling pa

rty to file post-tria l doc um e ntation of fe e s following benc h tria l); SIGA Te c hs., Inc . v. Pha

rm Athe ne , Inc ., 67 A.3d 330, 353 (De l . 2013) (c iting M aha ni v. Edix M e dia

Grp., Inc ., 935 A.2d 242 (De l. 2007) for theproposition tha t

“ De l aware la

w dic t a te s tha

t, in fe e shifting c a se s, a

judge de te rm ine whe the r the fe e s re que ste d a

re re a sona

ble .” ). In light of Pa

bba n’ s fa i lure to support its a rgum e nt with a pplic a ble la w, a n d give n the c a s e la

w whic h c ontra dic ts Pa

b ba n’ s argum e nt, we c annot c onc lude tha

t the distric t c ourt’ s a

ward of a ttorne y ’ s fe e s in this c a se wa s ba se d on le ga l e rror. W e do not c onside r Ky

phon’ s a rgum e nt, ra ise d for the first tim e on a ppe a l, that the inde m

nific a tion provision of the APA did not pe rm it a

n a w ard of fe e s. Se e Int’ l Union of B ric kla

y e rs & Allie d C ra ftsm an Loc a l Union No. 20, AFL-C IO v. M artin Ja ska , Inc ., 752 F.2d 1401, 1404 (9th C ir. 1985) (a p pe lla te c ourt will not
7re vie w a

n issue not ra i se d in the distric t c ourt unle ss ne c e ssa ry to pre ve nt m anife st injustic e ). AFFIRM E D
.

8