Case Name: Maxim Integrated Products, Inc. v. Novinium, Inc., et al.
Case No.: 2016-1-CV-297468

On March 6, 2015, plaintiff Maxim Integrated Products, Inc. (“Plaintiff” or “Maxim”) entered into a Services and Goods Agreement (“Agreement”) with defendant Novinium, Inc. (“Defendant” or “Novinium”) in which Novinium would provide electrical engineering services to Maxim, including injecting and rejuvenating underground electrical feeder cables at Maxim’s fabrication plant. (See complaint, ¶ 12.) However, Novinium failed accurately measure the length of the cables by 28%, and, in an attempt to complete the project on time, Novinium increased the injection pressure to 60 psi, double the maximum pressure provided by Novinium’s documented injection procedures. (See complaint, ¶¶ 17-20.) Moreover, Novinium reused ground clamps, improperly mixed or used defective injection fluids, and prematurely capped the cables being injected, all resulting in a massive power failure that shut down Maxim’s operations on March 27, 2015, caused damage to the integrated circuits (“ICs”) in fabrication, the fabrication equipment, and the cables, and resulted in lost sales due to an inability to meet the production deadlines of Maxim’s customers. (See complaint, ¶¶ 21-26.)

Despite their knowledge of the causes of cable failure, and that failure to remediate Novinium’s faulty work would result in future cable failures and damage to other Maxim property, Novinium failed to disclose this information to Maxim or take any action to remediate the known causes of the cable failure, and instead represented that the failure was caused by poor workmanship or a faulty cable at the failed connections, and that repairing those connections was sufficient to resolve the problem and prevent future cable failures. (See complaint, ¶ 27.) On March 29, 2015, the entire fabrication plant again shut down, resulting in additional damage to the cables and other Maxim property including chips in production. (See complaint, ¶ 28.) On April 21 and 22, 2015, Novinium’s CEO, Glen Bertini, admitted that: Novinium’s prior representations were false; the failures were caused by overpressurization of the injection fluid; the Novinium team should not have doubled the maximum injection pressure which violated Novinium’s own procedures; overpressurization causes a split on the cable seam in the location where each of the cables failed; the Novinium team lacked proper supervision and project management during the initial and subsequent remedial work; and Novinium needed to replace the entire cables to permanently fix the problems it created. (See complaint, ¶¶ 28-35.) Novinium was unable to cure its faulty services and products; thus, Maxim engaged another electrical vendor to replace all of the injected cables and all related work performed by Novinium. (See complaint, ¶ 40.) On July 11, 2016, Maxim field a complaint against Novinium and Utilx Corporation, asserting causes of action for:

1) Negligence;
2) Negligent misrepresentation;
3) Defective design/failure to warn;
4) Negligent interference with prospective economic relations;
5) Breach of contract;
6) Breach of the implied covenant of good faith and fair dealing;
7) Intentional interference with prospective economic relations; and,
8) Intentional misrepresentation.

Novinium moves to summarily adjudicate the fourth cause of action for negligent interference with prospective economic relations, the seventh cause of action for intentional interference with prospective economic relations, the eighth cause of action for intentional misrepresentation, and Plaintiff’s claim for punitive damages.

MOTION FOR SUMMARY ADJUDICATION

Defendant’s burden on summary judgment

“A defendant seeking summary judgment must show that at least one element of the plaintiff’s cause of action cannot be established, or that there is a complete defense to the cause of action. … The burden then shifts to the plaintiff to show there is a triable issue of material fact on that issue.” (Alex R. Thomas & Co. v. Mutual Service Casualty Ins. Co. (2002) 98 Cal.App.4th 66, 72; internal citations omitted; emphasis added.)

“The ‘tried and true’ way for defendants to meet their burden of proof on summary judgment motions is to present affirmative evidence (declarations, etc.) negating, as a matter of law, an essential element of plaintiff’s claim.” (Weil et al., Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2007) ¶ 10:241, p.10-91, citing Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 334; emphasis original.) “The moving party’s declarations and evidence will be strictly construed in determining whether they negate (disprove) an essential element of plaintiff’s claim ‘in order to avoid unjustly depriving the plaintiff of a trial.’” (Id. at § 10:241.20, p.10-91, citing Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107.)

“Another way for a defendant to obtain summary judgment is to ‘show’ that an essential element of plaintiff’s claim cannot be established. Defendant does so by presenting evidence that plaintiff ‘does not possess and cannot reasonably obtain, needed evidence’ (because plaintiff must be allowed a reasonable opportunity to oppose the motion.) Such evidence usually consists of admissions by plaintiff following extensive discovery to the effect that he or she has discovered nothing to support an essential element of the cause of action.” (Id. at ¶ 10:242, p.10-92, citing Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854-855.)

Novinium’s request for judicial notice

In support of its motion for summary adjudication, Novinium requests judicial notice of the complaint. This is a proper subject of judicial notice. (See Evid. Code § 452, subd. (d).) The request for judicial notice is GRANTED.

The seventh cause of action for intentional interference with prospective economic relations

Novinium argues that the seventh cause of action lacks merit because: intentional interference with prospective economic relations requires a competitive relationship between the parties; Novinium did not intend for the alleged interference to occur; Maxim cannot demonstrate that they suffered any damages as a result of any alleged interference by Novinium; and, Novinium did not perform an independently wrongful act beyond the alleged interference itself.

Novinium fails to meet its initial burden that the cause of action lacks merit because Maxim was a customer and not a competitor.

Novinium argues that Maxim cannot assert a cause of action for intentional interference with prospective economic relations because Maxim was a customer of Novinium and not a competitor, and thus Novinium’s conduct is not predatory economic behavior that is typical of such a cause of action. (See Novinium’s memorandum of points and authorities in support of motion for summary adjudication (“Novinium’s memo”), p.11:5-28.) However, according to a case cited by Novinium, the elements for a cause of action for intentional interference with prospective economic relations are “(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153, quoting Buckaloo v. Johnson (1975) 14 Cal.3d 815, 827.) The plaintiff must also “show that the defendant’s conduct was independently wrongful.” (Id. at p.1158.)

There is no requirement that the intentional acts on the part of the defendant designed to disrupt an economic relationship be predatory in nature or that the relationship be between competitors. As Novinium points out, the vast majority of actions for intentional interference with prospective economic relations are disputes between competitors as there is a basis for the intent to disrupt an economic relationship when the two parties are competitors. However, there is no language—and Novinium does not cite to language—that specifically requires a relationship between competitors as an element of the cause of action. Instead, Novinium cites to a portion of Korea Supply discussing the independently wrongful requirement—a separate basis for Novinium’s motion. Accordingly, Novinium’s argument lacks merit, and it fails to meet its initial burden with regards to its assertion that Maxim cannot assert a cause of action for intentional interference with prospective economic relations because Maxim was a customer of Novinium and not a competitor.

Novinium fails to meet its initial burden to demonstrate that it lacked intent to disrupt the economic relationship.

Novinium argues that “Plaintiff cannot establish that Novinium acted with ill-intent or knowledge that power failures were going to occur and interfere with Maxim’s business relationships.” (Novinium’s memo, p.12:2-5.) Novinium contends that “[t]he evidence shows that Novinium did not intend for the outages to occur….” (Id. at p.12:15-16, citing UMFs 3-7; see also Novinium’s reply brief, p.7:13-15, likewise citing UMFs 3-7.) However, the cited undisputed material facts (“UMFs”) of Novinium’s separate statement in support of its motion for summary adjudication are: Novinium’s Technical Services Manager, Norm Keiteges, was in charge of oversight at the planned Maxim project, including engineering quality control (UMF 3); Keiteges planned to increase the pressurization of the cables during the injection process above 30 psi to increase the speed of the project and meet the 18-hour project window, in conjunction with using high tension tape to prevent damage from increased pressurization (UMF 4); Novininum had successfully employed the use of high tension tape with increased pressure on multiple other projects without issue (UMF 5); Keiteges was unexpectedly called away from the Maxim project to tend to the sudden, impending death of his wife, and, due to his wife’s condition, did not communicate his plan to use high tension tape to the remaining crew at the Maxim project (UMF 6); and, the remaining crew at the Maxim project did not use high tension tape as a result of Norm’s unexpected absence (UMF 7). These facts do not demonstrate that Novinium did not intend to interfere with Maxim’s business relationships. Although it is perhaps implausible that a company would intentionally sabotage its customer’s ability to maintain relationships with its own customers, the fact that Keiteges was not present to supervise the project does not eliminate the possibility that a different Novinium employee intended to cause disruption of Maxim’s business relationships. As such, Novinium fails to meet its initial burden to demonstrate that it lacked intent to disrupt Maxim’s economic relationships.

Novinium meets its initial burden to demonstrate that Maxim lacked damage to prospective economic relations; and, in opposition, Maxim does not demonstrate the existence of a triable issue of material fact.

In support of its contention that Maxim cannot demonstrate that it suffered damage to economic relations as a result of any alleged interference by Novinium, it attaches a stipulation in which Maxim agreed to withdraw its claim for $1.6 million of lost revenue based on lost financial moves. (See Krutzsch decl., exh. I.) Further, Novinium attaches a document, entitled “Maxim’s Damages” in the instant action, summarizing the types of damages being asserted. The lone damages that would be based on a cause of action for intentional interference with prospective economic damages is the $1.6 million of “lost revenue based on lost financial moves.” (Krutzsch decl., exhs. M., N.) Novinium meets its initial burden to demonstrate that Maxim cannot demonstrate that it suffered damage to economic relations as a result of any alleged interference by Novinium. (See evidence cited by UMF 15.)

In opposition, Maxim argues that “the power failures required Maxim to spend more than $2.5 Million for timely completion of contract obligations, $2.5 Million that would not otherwise have been unnecessary [sic], a substantial loss of profit from revenue.” (Maxim’s opposition to Novinium’s motion for summary judgment, p.15:2-5.) However, as Novinium argues in reply, these types of damages do not evidence damages based on intentional interference with prospective economic relations. (See Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 392 (distinguishing tort of interference with existing contractual relations with that of interference with prospective economic relations, noting a “need to draw and enforce a sharpened distinction between claims for the tortious disruption of an existing contract and claims that a prospective contractual or economic relationship has been interfered with by the defendant… [t]he courts provide a damage remedy against third party conduct intended to disrupt an existing contract precisely because the exchange of promises resulting in such a formally cemented economic relationship is deemed worthy of protection from interference by a stranger to the agreement… [e]conomic relationships short of contractual, however, should stand on a different legal footing as far as the potential for tort liability is reckoned”).) Accordingly, Maxim fails to demonstrate the existence of a triable issue of material fact as to the seventh cause of action, and the motion for summary adjudication of the seventh cause of action for intentional interference with prospective economic advantage is GRANTED.

The fourth cause of action for negligent interference with prospective economic relations

Novinium also moves for summary adjudication of the fourth cause of action for negligent interference with prospective economic relations, also asserting that Maxim cannot demonstrate that it suffered damage to economic relations as a result of any alleged interference by Novinium. As with the intentional interference with prospective economic relations cause of action, Novinium meets its initial burden to demonstrate that Maxim cannot demonstrate that it suffered damage to economic relations as a result of any alleged interference by Novinium. (See evidence cited by UMF 16; Krutzsch decl., exhs. I, M, N.)

In opposition, Maxim’s argument as to the fourth cause of action is combined with its argument as to the seventh cause of action. (See Maxim’s opposition to Novinium’s motion for summary adjudication, pp.14:27-28, 15:1-17.) Thus, for identical reasons, Maxim fails to demonstrate the existence of a triable issue of material fact as to whether it suffered damage to economic relations as a result of any alleged interference by Novinium. Novinium’s motion for summary adjudication of the fourth cause of action for negligent interference with prospective economic advantage is GRANTED.

The eighth cause of action for intentional misrepresentation and punitive damages claim

Novinium argues that Maxim cannot show that Novinium knew that their representations were false at the time when they were made. (See Novinium’s memo, pp.15:4-28, 16:1-28, 17:1-25.) Novinium also argues that there can be no punitive damages here absent a showing of intentional or despicable conduct, or that Novinium knew that their representations were false at the time when they were made. (Id. at pp.18:1-28, 19:1-2.) Nevertheless, there is a triable issue as to whether Novinium knew that overpressurization was the root cause of the failure, and that ground straps was not the root cause. (See evidence cited by UMFs 18, 20-21, 23-28, 30.) Novinium exceeded its own stated maximum pressure limits, and its internal tracking system, Knowmentous, alerted the crew that they exceeded the allowed injection pressure in violation of its procedures. Novinium, in reply, acknowledges that its employees would have known about this alert, but asserts that this does not definitively demonstrate that it knew that overpressurization was the root cause of the failure. (See Novinium’s reply, pp.5:18-28, 6:1-2.) However, there is evidence that Novinium represented that the cause of the failure was reuse of old grounding straps. In reply, Novinium argues that “[e]ven if they represented to Mr. Staub that ground straps were the root cause, the evidence shows they did not know overpressurization was the cause.” (Id. at p.6:15-16.) However, Novinium’s knowledge of overpressurization as the cause is not only at issue, but also whether Novinium knew that ground straps were not the root cause. Regardless, there is a triable issue as to both. Accordingly, the motion for summary adjudication of the eighth cause of action for intentional misrepresentation, and the motion for summary adjudication of the claim for punitive damages is DENIED.

Novinium’s objections to evidence submitted by Maxim in opposition are not in compliance with Rule of Court 3.1354. The objections are thus OVERRULED.

The Court will prepare the Order.