Case Number: BC660411 Hearing Date: June 12, 2018 Dept: 85

BFK, Inc. v. Fujifilm North America Corporation, et al., BC 660411

Tentative decision on application for right to attach order: denied

Defendant/Cross-Complainant Fujifilm North America, Corporation (“Fujifilm”) seeks a right to attach order in the amount of $1,391,997.36 against Plaintiff/Cross-Defendant BFK, Inc. (“BFK”).

The court has read and considered the moving papers, opposition,[1] and reply,[2] and renders the following tentative decision.

A. Statement of the Case

1. Complaint

Plaintiff/Cross-Defendant BFK commenced this proceeding on May 5, 2017. The operative pleading is the Second Amended Complaint (“SAC”) filed February 26, 2018, which alleges causes of action for (1) breach of contract, (2) fraud, (3) breach of the implied covenant of good faith and fair dealing, (4) unfair trade practices, (5) interference with prospective economic advantage, (6) declaratory relief, and (7) promissory estoppel. The FAC alleges in pertinent part as follows.

BFK is in the business of distributing photographic imaging products. Fujifilm is a marking subsidiary of Fujifilm Holdings America Corporation. Its “Imaging Division” provides consumer and commercial photographic products and services.

On March 14, 2014, the parties entered into a written Distribution Agreement (“Agreement”). Under the Agreement, Fujifilm granted to BFK a non-exclusive right to sell, market, and distribute Fujifilm color photographic paper in Afghanistan, Iraq, Tanzania, and Turkmenistan (“Territory”). The Agreement determined the prices that Fujifilm would sell this paper. The initial term of the Agreement was one year and would renew automatically unless terminated by either party by written notice delivered to the other party at least 30 days prior to the end of the current term.

The Fujifilm representative in charge of overseeing the Agreement was its Senior Vice President and General Manager Manuel Almeida (“Almeida”).

In January 2015, the parties amended the Agreement. Almeida, acting on behalf of Fujifilm, told BFK’s two principals that, inter alia, (1) BFK could sell Fujifilm product anywhere in the world except Japan and (2) Fujifilm would not enforce the “territory” provision of the Agreement.

In September 2016, Fujifilm, without warning or cause, refused to accept new BFK orders. Its excuses were false and fabricated. BFK repeatedly requested that Fujifilm comply with the terms of the Agreement throughout the end of 2016 and early months of 2017. Fujifilm’s refusal resulted in BFK’s inability to meet customer orders.

In January 2017, Almeida disclosed the “real problem” why Fujifilm refused to comply with the Agreement. According to Almeida, Fujifilm had discovered some of BFK’s Fujifilm paper in China and was concerned with “gray market” sales there.

BFK alleges that this was not a genuine discovery. Almeida and Fujifilm knew about BFK’s Fujifilm paper sales in China in 2015 and did not terminate the Agreement on this basis, and actually increased sales to BFK. Prior to September 2016, Fujifilm’s only concern was the revenue it could obtain from selling paper to BFK, not where the paper ended up.

BFK learned from Almeida that he was receiving pressured from other affiliated Fujifilm corporations, such as Fujifilm China, to put an end to their arrangement. Almeida told BFK that it was the “sacrificial lamb” in this situation.

2. Cross-Complaint

Cross-Complainant and Defendant Fujifilm commenced this proceeding on October 2, 2017, alleging causes of action for (1) breach of written contract and (2) account stated.

Pursuant to the Agreement, Fujifilm appointed BFK as a non-exclusive distributor of color paper products in the Territory. BFK served as a distributor under the Agreement from March 3, 2014 through March 2, 2017.

In June 2016, Fujifilm discovered that substantial quantities of products that it sold to BFK were being resold in China in violation of the Agreement. On several occasions between June and December 2016, Fujifilm notified BFK of these violations and demanded that it take corrective action. BFK failed to do so.

On January 31, 2017, Fujifilm gave BFK notice of non-renewal of the Agreement. As of the termination date of the agreement, March 2, 2017, BFK owed Fujifilm the sum of $1,374,283.64 for products purchased.

3. Course of Proceedings

Proofs of service on file show that Fujifilm was served by personal service with the Complaint and Summons on May 12, 2017 and by mail with the moving papers on April 16, 2018.

On April 24, 2014, the court granted BFK’s ex parte application to continue the hearing on Fujifilm’s application for right to attach order to June 12, 2018.

B. Applicable Law

Attachment is a prejudgment remedy providing for the seizure of one or more of the defendant’s assets to aid in the collection of a money demand pending the outcome of the trial of the action. See Whitehouse v. Six Corporation, (1995) 40 Cal.App.4th 527, 533. In 1972, and in a 1977 comprehensive revision, the Legislature enacted attachment legislation (CCP §481.010 et seq.) that meets the due process requirements set forth in Randone v. Appellate Department, (1971) 5 Cal.3d 536. See Western Steel & Ship Repair v. RMI, (1986) 176 Cal.App.3d 1108, 1115. As the attachment statutes are purely the creation of the Legislature, they are strictly construed. Vershbow v. Reiner, (1991) 231 Cal.App.3d 879, 882.

A writ of attachment may be issued only in an action on a claim or claims for money, each of which is based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five hundred dollars ($500). CCP §483.010(a). A claim is “readily ascertainable” where the amount due may be clearly ascertained from the contract and calculated by evidence; the fact that damages are unliquidated is not determinative. CIT Group/Equipment Financing, Inc. v. Super DVD, Inc., (2004) 115 Cal.App.4th 537, 540-41 (attachment appropriate for claim based on rent calculation for lease of commercial equipment).

All property within California of a corporation, association, or partnership is subject to attachment if there is a method of levy for the property. CCP §487.010(a), (b). While a trustee is a natural person, a trust is not. Therefore, a trust’s property is subject to attachment on the same basis as a corporation or partnership. Kadison, Pfaelzer, Woodard, Quinn & Rossi v. Wilson, supra, 197 Cal.App.3d at 4.

The plaintiff may apply for a right to attach order by noticing a hearing for the order and serving the defendant with summons and complaint, notice of the application, and supporting papers any time after filing the complaint. CCP §484.010. Notice of the application must be given pursuant to CCP section 1005, sixteen court days before the hearing. See ibid.

The notice of the application and the application may be made on Judicial Council forms (Optional Forms AT-105, 115). The application must be supported by an affidavit showing that the plaintiff on the facts presented would be entitled to a judgment on the claim upon which the attachment is based. CCP §484.040.

Where the defendant is a corporation, a general reference to “all corporate property which is subject to attachment pursuant to subdivision (a) of Code of Civil Procedure Section 487.010” is sufficient. CCP §484.020(e). Where the defendant is a partnership or other unincorporated association, a reference to “all property of the partnership or other unincorporated association which is subject to attachment pursuant to subdivision (b) of Code of Civil Procedure Section 487.010” is sufficient. CCP §484.020(e). A specific description of property is not required for corporations and partnerships as they generally have no exempt property. Bank of America v. Salinas Nissan, Inc., (“Bank of America”) (1989) 207 Cal.App.3d 260, 268.

A defendant who opposes issuance of the order must file and serve a notice of opposition and supporting affidavit as required by CCP section 484.060 not later than five court days prior to the date set for hearing. CCP §484.050(e). The notice of opposition may be made on a Judicial Council form (Optional Form AT-155).

The plaintiff may file and serve a reply two court days prior to the date set for the hearing. CCP §484.060(c).

At the hearing, the court determines whether the plaintiff should receive a right to attach order and whether any property which the plaintiff seeks to attach is exempt from attachment. The defendant may appear at the hearing. CCP §484.050(h). The court generally will evaluate the attachment application based solely on the pleadings and supporting affidavits without taking additional evidence. Bank of America, supra, 207 Cal.App.3d at 273. A verified complaint may be used in lieu of or in addition to an affidavit if it states evidentiary facts. CCP §482.040. The plaintiff has the burden of proof, and the court is not required to accept as true any affidavit even if it is undisputed. See Bank of America, supra, 207 Cal.App.3d at 271, 273.

The court may issue a right to attach order (Optional Form AT-120) if the plaintiff shows all of the following: (1) the claim on which the attachment is based is one on which an attachment may be issued (CCP §484.090(a)(1)); (2) the plaintiff has established the probable validity of the claim (CCP §484.090(a)(2)); (3) attachment is sought for no purpose other than the recovery on the subject claim (CCP §484.090(a)(3); and (4) the amount to be secured by the attachment is greater than zero (CCP §484.090(a)(4)).

A claim has “probable validity” where it is more likely than not that the plaintiff will recover on that claim. CCP §481.190. In determining this issue, the court must consider the relative merits of the positions of the respective parties. Kemp Bros. Construction, Inc. v. Titan Electric Corp., (2007) 146 Cal.App.4th 1474, 1484. The court does not determine whether the claim is actually valid; that determination will be made at trial and is not affected by the decision on the application for the order. CCP §484.050(b).

The amount to be secured by the attachment is the sum of (1) the amount of the defendant’s indebtedness claimed by the plaintiff, and (2) any additional amount included by the court for estimate of costs and any allowable attorneys’ fees under CCP section 482.110. CCP §483.015(a); Goldstein v. Barak Construction, (2008) 164 Cal.App.4th 845, 852. This amount must be reduced by the sum of (1) the amount of indebtedness that the defendant has in a money judgment against plaintiff, (2) the amount claimed in a cross-complaint or affirmative defense and shown would be subject to attachment against the plaintiff, and (3) the value of any security interest held by the plaintiff in the defendant’s property, together with the amount by which the acts of the plaintiff (or a prior holder of the security interest) have decreased that security interest’s value. CCP §483.015(b). A defendant claiming that the amount to be secured should be reduced because of a cross-claim or affirmative defense must make a prima facie showing that the claim would result in an attachment against the plaintiff.

Before the issuance of a writ of attachment, the plaintiff is required to file an undertaking to pay the defendant any amount the defendant may recover for any wrongful attachment by the plaintiff in the action. CCP §489.210. The undertaking ordinarily is $10,000. CCP §489.220. If the defendant objects, the court may increase the amount of undertaking to the amount determined as the probable recovery for wrongful attachment. CCP §489.220. The court also has inherent authority to increase the amount of the undertaking sua sponte. North Hollywood Marble Co. v. Superior Court, (1984) 157 Cal.App.3d 683, 691.

C. Statement of Facts[3]

1. Fujifilm’s Evidence

a. The Agreement

Fujifilm is an international supplier of photographic materials, including color paper. Almeida Decl. ¶2. Almeida is the Division President of Fujifilm’s Imaging Division. Id. Almeida acted on behalf of Fujifilm to manage the relationship with BFK. Almeida Decl. ¶4.

Pursuant to the Agreement executed on March 3, 2014, Fujifilm granted BFK a non-exclusive right to sell, market, or otherwise distribute color paper products in the Territory. Almeida Decl. ¶4, Ex. 1, §1.1. The Agreement provides for an initial one-year term of the Agreement which would automatically renew for successive one-year periods thereafter unless a party provided written notice of termination at least 30 days prior to the end of the then-current term. Almeida Decl. ¶6, Ex. 1, §11.1. Further, the Agreement authorizes Fujifilm to terminate the Agreement immediately if BFK sells any products outside of the Territory. Almeida Decl. ¶6, Ex. 1, §11.2.

BFK served as a distributor under the Agreement from March 3, 2014 through March 2, 2017. Almeida Decl. ¶7. Commencing in June 2016, Fujifilm discovered that substantial quantities of products sold to BFK were being resold in China in violation of the Agreement. Id. On several occasions between June and December 2016, Fujifilm notified BFK of these violations and demanded that BFK take immediate corrective action. Id. BFK failed to do so. Id.

On January 31, 2017, Fujifilm gave BFK written notice of non-renewal of the Agreement. Almeida Decl. ¶8. The Agreement terminated on March 2, 2017. Id.

b. Purchase Orders

In August 2016, BFK submitted purchase orders to Fujifilm for the purchase of products at a total agreed price of $1,377,059. Almeida Decl. ¶9, Ex. 2. In December 2016, Fujifilm sent BFK written confirmations of the purchase orders. Almeida Decl. ¶10, Ex. 3.

Between December 8, 2016 and January 9, 2017, Fujifilm delivered to BFK the products purchased pursuant to the purchase orders and simultaneously invoiced BFK for the same. Almeida Decl. ¶11, Ex. 4. On February 1, 2017 and each month thereafter, Fujifilm sent BFK statements of account reflecting the amounts invoiced and outstanding for the products purchased and delivered to BFK pursuant to the purchase orders. Almeida Decl. ¶12, Ex. 5. In February 2017, Fujifilm issued BFK a credit for returned product in the amount of $2,775.36, thereby reducing the balance owed to $1,374,283.64. Id.

BFK has never disputed Fujifilm’s invoices or statements of account regarding the amount owed. Almeida Decl. ¶13. To the contrary, BFK’s principal, Farshid Ourian (“Ourian”), confirmed to Fujifilm in an email that BFK has a “full intention of paying all outstanding invoices.” Id., Ex. 6. Despite Fujifilm’s repeated demands, BFK has failed to pay the amounts owed. Almeida Decl. ¶14.

Fujifilm has accrued $12,713.72 in costs to date. Almeida Decl. ¶17; Cohen Decl. ¶5.

c. Depositions

On March 21 and 22, 2018, Fujifilm deposed two principals of BFK, Ourian and Bob Bakhshi (“Bakhshi”). Cohen Decl. Exs. A-B. Ourian confirmed that (a) BFK placed purchase orders with Fujifilm in August 2016 (Cohen Decl. Ex. A, p.118), (b) Fujifilm issued BFK written sales order confirmations for these purchase orders (Cohen Decl. Ex. A, p.130), (c) Fujifilm shipped BFK these products (Cohen Decl. Ex. A, p.138), BFK resold these products to its resellers (Id.), (d) Fujifilm issued BFK invoices in connection with these purchase orders (Cohen Decl. Ex. A, p.131), and (e) Fujifilm issued BFK monthly statements of account listing an outstanding balance of $1,374,283.64. Cohen Decl. Ex. A, p.134.

2. BFK’s Evidence

a. The Agreement

BFK has been a distributer of photographic imaging products for over 30 years. Bakhshi Decl. ¶1; Ourian Decl. ¶1.

In March 2014, the parties entered into the Agreement. Bakhshi Decl. ¶2; Ourian Decl. ¶2, Ex. 5. The Fujifilm representative who personally managed the Agreement and executed the Agreement was Almeida, Fujifilm’s Senior Vice President and General Manager. Bakhshi Decl. ¶¶ 2, 4; Ourian Decl. ¶¶ 2, 4, Ex. 20. After the Agreement’s execution, Almeida became Fujifilm’s President. Bakhshi Decl. ¶2; Ourian Decl. ¶2.

While the Agreement was being negotiated, Almeida disclosed that Fujifilm had just lost one of its biggest customers: Walgreens. Bakhshi Decl. ¶3; Ourian Decl. ¶3. As a result, Fujiflim was seeking to increase sales anyway it could. Bakhshi Decl. ¶3; Ourian Decl. ¶3. The parties agreed that the territory restriction in the Agreement would never be enforced by Fujifilm. Bakhshi Decl. ¶4; Ourian Decl. ¶4. Alameida had regular discussions with BFK’s representatives in which he expressly approved of and encouraged BFK’s distribution of Fujifilm paper outside the territory. Bakhshi Decl. ¶4; Ourian Decl. ¶4.

b. The Termination

For approximately 30 months, Almeida and Fujifilm mostly complied with the terms and conditions of the Agreement. Bakhshi Decl. ¶4; Ourian Decl. ¶4.

In September 2016, six months prior to the expiration of the current one-year term, Almeida told Ourian that he was getting pressure from other affiliated Fujifilm corporations to stop shipments to BFK. Bakhshi Decl. ¶5; Ourian Decl. ¶5. Thereafter, Fujifilm refused to sell its color photographic paper products to BFK, even though the Agreement stayed in effect until March 2017. Id.; Krishel Decl. Ex. 1, p.14. From September 2016 to January 2017, the total value of all orders which BFK submitted to Fujifilm and Fujifilm rejected is $1,085,381.16. Bakhshi Decl. ¶12; Ourian Decl. ¶12.

In November 2016, BFK sent Fujifilm emails asking Fujifilm to comply with the Agreement as its refusal was causing BFK untold damage. Bakhshi Decl. ¶5; Ourian Decl. ¶5, Ex. 22. Fujifilm did not respond. Id.

On January 31, 2017, Fujifilm gave BFK notice of non-renewal of the Agreement. Bakhshi Decl. ¶2; Ourian Decl. ¶2, Ex. 10.

c. Contract Breaches

(i). Price Increases

On September 6, 2016, Fujifilm notified BFK via email of a 12.3% price increase for its color paper. Bakhshi Decl. ¶6; Ourian Decl. ¶6, Ex. 8. The email stated the price increase would be effective as of October 7, 2016. Id. Yet, Fujifilm made the price increase effective immediately. Id. From September 6, 2016 to October 7, 2017, Fujifilm refused to accept any orders from BFK unless BFK agreed to the higher prices. Bakhshi Decl. ¶6; Ourian Decl. ¶6, Ex. 9. The orders which Fujifilm rejected were valued at $981,608.16. Bakhshi Decl. ¶7; Ourian Decl. ¶7, Ex. 9.

(ii). B Stock Paper

“B Stock” is a classification used to denote customer-returned paper. Krishel Decl. Ex. 1, p.94. In its normal course of practice, Fujifilm offers such B Stock paper at a discount (Ex. 1, p.90), segregates it from the reset of the paper product (Ex. 1, p.98), and discloses to customers the quality of the paper (Ex. 1, p.99).

In September 2015, Fujifilm took back a substantial amount of color paper product from Walgreens. Ex. 1, p.82-83. As a consumer-returned paper, this product was classified as B Stock paper. Ex. 1, p.94. Thereafter, a “good amount” of this paper product was sold to BFK. Ex. 1, p.89; see also Bakhshi Decl. ¶10; Ourian Decl. ¶10, Ex. 23. Some evidence also suggests that this sale of B Stock paper to BFK was not a one-time occurrence. Krishel Decl. Ex. 7, pp. 26-27.

BFK never requested this paper and, if it had known, never would have purchased such paper because of concerns about the paper’s early expiration and other potential defects. Bakhshi Decl. ¶9; Ourian Decl. ¶9.

Even when BFK customers complained about the quality of the paper and BFK passed on these complaints to Fujifilm, Fujifilm did not disclose that the paper purchased was B Stock quality. Bakhshi Decl. ¶10; Ourian Decl. ¶10, Ex. 25.

(iii). Territory

As stated ante, the parties discussed the fact that the territory restriction in the Agreement would never be enforced, both during the negotiation and performance. Bakhshi Decl. ¶¶ 3-4; Ourian Decl. ¶¶ 3-4.

BFK’s monthly purchase orders of Fujifilm paper increased from $79,552.92 in June 2014 to $3,525,680.80 in August 2016. Bakhshi Decl. ¶13; Ourian Decl. ¶13.

After May 2016, Fujifilm’s acceptance of BFK’s orders rose by approximately 800%. Id. Fujifilm actively encouraged BFK to sell even more product outside of the Territory by giving BFK significant rebates exceeding $368,000 between June and November 2016. Bakhshi Decl. ¶14; Ourian Decl. ¶14. Almeida told Fujifilm that the rebates were provided so that BFK could lower its prices, be more competitive in the marketplace, and sell ever increasing amounts of Fujifilm’s paper to the Territory and outside it. Id.

D. Analysis

1. Fujifilm’s Prima Facie Case

Fujifilm seeks right to attach orders against BFK in the amount of $1,391,997.36.[4] Fujifilm’s claim is based on an express written contract between the parties. Almeida Decl. Ex. 1. The amount due pursuant to BFK’s alleged breach of the Agreement is $1,377,059. Almeida Decl. ¶¶ 9, 12, Exs. 2, 5. This is a fixed and readily ascertainable amount. This is a claim on which attachment can be based.

The elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff. Oasis West Realty, LLC v. Goldman, (2011) 51 Cal.4th 811, 821. Fujifilm shows that (1) the parties executed the Agreement (Almeida Decl. ¶4, Ex. 1), (2) Fujifilm performed all of its obligations under the Agreement (Almeida Decl. ¶15), (3) BFK breached the Agreement by failing to pay amounts owed (Almeida Decl. ¶14), and (4) Fujifilm has suffered damages in excess of $1 million. Almeida Decl. ¶13.

An account stated is an agreement, based on prior transactions between the parties, that the items of an account are true and that the balance struck is due and owing. Leighton v. Forster, (2017) 8 Cal.App.5th 467, 491. “The essential elements of an account stated are: (1) previous transactions between the parties establishing the relationship of debtor and creditor; (2) an agreement between the parties, express or implied, on the amount due from the debtor to the creditor; and (3) a promise by the debtor, express or implied, to pay the amount due.” Id. Fujifilm shows that (1) under the Agreement, Fujifilm routinely sold BFK products for which BFK then paid Fujifilm (Almeida Decl. Exs. 1-5), (2) the Agreement sets forth a pricing chart dictating the amount owed (Almeida Decl. Ex. 1), and (3) BFK submitted purchase orders, received products for such orders, and resold said products (Almeida Decl. ¶¶ 9, 11), (4) Fujifilm sent statements of account to BFK reflecting the $1,374,283.64 balance owed (Almeida Decl. ¶12), and (5) BFK promised to pay the account stated. Almeida Decl. ¶13.

Fujifilm has presented prima facie cases for both its breach of contract and account stated claims against BFK.

b. BFK’s Defenses

BFK claims that Fujifilm cannot prevail on its breach of contract claim because it breached the Agreement in various ways. Opp. at 4.

(i). b. B Stock

BFK asserts that Fujifilm breached the Agreement by fraudulently selling it B Stock paper. Opp. at 8. BFK points out that this sale occurred 17 months prior to the invoice’s due date. Opp. at 6-8.

A defendant may raise a claim of offset for any indebtedness of the plaintiff to the defendant raised in a cross-complaint or affirmative defense in an answer. CCP §483.015(b)(2), (3). The defendant’s offset claim under CCP section 483.015(b)(2) or (3) must be supported by sufficient evidence to prove a prima facie case of attachment in its own right. Lydig Construction, Inc. v. Martinez Steel, (2015) 234 Cal.App.4th 937; Pos-A-Traction, Inc. v. Kelly Springfield, (C.D. Cal. 1999) 112 F.Supp.2d 1178, 1183.

Contrary to Fujifilm’s argument (Reply at 2), BFK is not required to be granted leave to amend its Complaint to add this claim in order to allege offset. It is sufficient if BFK presents evidence that shows a prima facie case for such a claim or as an affirmative defense. Nonetheless, BFK’s B Stock argument does not create a claim or defense of offset. BFK shows that it was sold B Stock paper, and that it was not informed of that fact. But this is not sufficient. BKF has not shown through admissible evidence (b) the amount of B Stock sold to BFK, (b) that the B Stock sold to BFK actually was inferior such that it was not of merchantable quality, and (c) that BFK sustained actual damage from B Stock returns, lost business, or loss of reputation.

BFK has not presented a prima facie case of offset based on the sale of B Stock.

(ii). Territory Breach

BFK claims Fujifilm breached the Agreement because, while Fujifilm may have had the right to immediately terminate the Agreement due to BFK’s sales outside the Territory, Fujifilm knew about and encouraged these sales and never exercised this right. Opp. at 9-14.

This is not a claim of contract breach, but rather a defense to Fujifilm’s claim that BFK’s sales outside the Territory breached the Agreement.

The parties agree that, at some point, Fujifilm knew that BFK was selling outside its Territory. BFK contends that this point was agreed upon and encouraged from the outset (Bakhshi Decl. ¶¶ 3-4; Ourian Decl. ¶¶ 3-4), while Fujifilm contends that it only discovered this fact in June 2016. Almeida Decl. ¶7. Whenever it became aware of the non-Territory sales, Fujifilm had the option to terminate the Agreement. The Agreement provides for termination in two ways: (1) by either party at the end of the current term with 30 days’ written notice and (2) by Fujifilm immediately should BFK sell any products outside the Territory. Almeida Decl. Ex. 1 §§ 11.1., 11.2. Fujifilm could have chosen to immediately terminate BFJ in June 2016, but instead chose to continue the parties relationship; Fujifilm terminated the Agreement at the end of the term in March 2017. Almeida Decl. ¶8; Krishel Decl. Ex. 10. Because Fujifilm was aware of BFK’s sales outside the Territory and chose not to terminate the Agreement until March 2017, Fujifilm was obligated to continue to sell products to BFK. So long as BFK complied with the Agreement’s terms, Fujifilm’s claim of BFK’s antecedent breach is not a viable reason for Fujifilm to refuse to sell products to BFK while the Agreement remained in place.

(iii) Price Increase

BFK argues that Fujifilm breached the Agreement by improperly increasing the price of its color paper because the September 6, 2016 notice stated that October 7, 2016 would be the effective date of the price increase. Opp. at 5. BFK argues that Fujifilm’s rejection of BFK’s purchase orders between September 6 and October 7, 2016 at the existing price constitutes a breach of contract and shows that Fujifilm is in default of its obligations under the Agreement. Opp. at 6.

Under the Agreement, Fujifilm was required to sell BFK products at the prices “listed in the then effective price list” which was “subject to change upon notice from Fujifilm.” Almeida Decl. Ex. 1 §4.1. A notice of a price change effective on October 7, 2016 cannot be effective prior to that date without notice.[5]

Fujifilm defends its refusal to fill purchase orders under the Agreement by arguing that the Agreement permits it to change the pricing upon notice to BFK, and that an order is not binding until accepted in writing by Fujifilm. Reply at 2.

Pursuant to the Agreement, Fujifilm had the right to refuse a BFK purchase order for any legitimate reason except price – i.e., it could have rejected a purchase order because it was out of stock, because BFK was behind on its payments, or because BFK was going to sell the products out-of-Territory. However, Fujifilm could not reject a purchase order based on a price increase without giving notice of such an increase. The only price increase for which Fujifilm gave notice was one effective on October 6, 2016. Thus, Fujifilm was obligated to honor the purchase orders received before October 6, 2016 at the lower price. Both Almeida and Fachnie essentially admitted as much. Ex. 1, pp. 11-13; Ex. 7, p. 54.

Fujifilm argues that all of BFK’s customers were located outside the Territory and BFK cannot establish otherwise. Reply at 7. Essentially, Fujifilm is arguing that BFK was purchasing products in September 2016 for sale outside the Territory.

If Fujifilm knew that BFK intended the September 2016 purchases to be resold outside the Territory, that would have been a legitimate reason to refuse the orders. But there is no evidence that Fujifilm refused the orders for this reason. Indeed, Fujifilm appears to contend that it did not know where BFK was sending the product. See Reply at 6, n.8. The evidence shows that the orders were refused because BFK would not pay the higher price, not because the products would be resold outside the Territory. See Ourian Decl. ¶6, Ex. 9.

Even if its sales personnel did not know that BFK intended to sell outside the permitted Territory, Fujifilm would have a viable defense that BFK intended the purchases for a purpose that is improper under the Agreement. This would be a breach of contract. While Fujifilm asserts this defense (Reply at 7), it has not been proven.

In sum, BFK’s evidence is that it submitted $981,608.16 in purchase orders between September 6, and October 7, 2016 that were not honored. These purchase orders were not honored for a reason – a not yet effective price increase – that was not justified under the Agreement. Fujifilm has not shown that BFK ordered the products to be resold outside the Territory inconsistent with the Agreement. Based on the current evidence, BFK has shown that Fujifilm breached the Agreement. This breach prevented BFK from having the cash to pay the existing invoices.

“It is elementary that one party to a contract cannot compel another to perform while he himself is in default.” Lewis Pub. Co. v. Henderson, (1930) 103 Cal.App. 425, 429. “[P]revention of performance by one party to a contract excuses performance by the other party.” Hale v. Sharp Healthcare, (2010) 183 Cal.App.4th 1373, 1387. Based on the current state of the evidence, BFK has a prima facie defense that Fujifilm improperly refused to fill its orders in breach of the Agreement, and this breach excused its non-payment of the $1.3 million account.

Fujifilm has not presented a reasonable probability of success for its claims and the application for right to attach order is denied.

[1] The opposition’s footnotes violate the 12 point type requirement of CRC 2.104 and have not been read or considered.

[2] The 11 page reply violates the ten page limit of CRC 3.1113(d). Fujifilm’s counsel is admonished that the ten page limit does not mean ten pages plus a signature page.

[3] The court has ruled on Fujifilm’s written objections, interlineating the original evidence where an objection was sustained. Some objections were overruled pursuant to Fibreboard Paper Products Corp. v. East Bay Union of Machinists, Local 1304, Seelworkers of America, AFL-CIO, (1964) 227 Cal.App.2d 675, 712 (court may overrule objection if any portion of objected to material is admissible).

[4] In reply, Fujifilm asserts that the Agreement contains a choice-of-law clause mandating that New York law govern this dispute. Reply at 4; Almeida Decl. Ex. 1, §12.7. This issue raised for the first time in reply has been disregarded. See Regency Outdoor Advertising v. Carolina Lances, Inc., (1995) 31 Cal.App.4th 1323, 1333.

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[5] Fujifilm replies that its obligations under the Agreement were discharged by BFK’s antecedent breach by selling products outside the Territory. Reply at 7. Not true. The Agreement explicitly provides for this scenario: Fujifilm “may terminate this Agreement immediately if [BFK] sells any Products outside the Territory.” Almeida Decl. Ex. 1, §11.2. Fujifilm did not exercise its right to terminate the Agreement. It merely chose not to renew the Agreement at its annual termination.