Copart, Inc. v. Sparta Consulting, Inc.

COPART, INC., Plaintiffs, v. SPARTA CONSULTING, INC., KPIT INFOSYSTEMS, INC.,AND KPIT TECHNOLOGIES, LTD., Defendants.

No. 2:14-CV-00046-KJM-CKD

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

April 19, 2018

ORDER

On February 9, 2018, the court heard argument on defendants' motion to bifurcate and the parties' motions in limine filed in anticipation of the trial. The court now resolves the parties' motions as explained below.

I. DEFENDANTS' MOTION TO BIFURCATE

Defendants have moved to bifurcate the trial into two phases. ECF No. 290. Defendants argue if Copart fails to prove its fraudulent inducement claim, limited by the court's previous summary judgment order, ECF No. 264, then Copart's fraud and professional negligence claims are barred due to waiver and the economic loss rule. ECF No. 290 at 3, 4-6. According to defendants, if Copart fails on its fraudulent inducement claim, then the second phase of the bifurcated trial "will be limited to [Copart's] computer hacking and trade secret misappropriation claims, along with Sparta's contract counterclaims, greatly reducing the scope of trial." ECF No. 290 at 6.

Defendants assert bifurcation will promote judicial economy and prevent juror confusion because focus on the sole alleged statement by Sparta that "it would ensure 100% Copart Auction System [CAS] functionality" during "the Design Phase" would limit evidence presented in a first phase to the first six months of the two-year AIMOS project, make relevant fewer than five percent of the exhibits in this case and require calling of only seven out of thirty-six witnesses. Id. at 6-7. This limitation of exhibits and witnesses would result in the first phase of the trial being "just a few days." Id. at 7. Defendants would suffer prejudice without a bifurcated trial because Copart could "attempt to throw in every potentially negative comment and action by Sparta to sow juror confusion over what misrepresentations can support its claims." Id. at 7-8. Additionally, defendants assert a bifurcated trial would permit Sparta to revive its barred quasi-contract claims if Copart prevails on fraudulent inducement and parts of the contract are rescinded or voided. See id. at 8 (citing ECF No. 264 at 16-19).

In opposition, Copart argues it would have to present the same evidence twice under defendants' proposed bifurcation. ECF No. 341 at 1. Copart also contends defendants misread the court's order on summary judgment. Id. According to Copart, the court's order does not preclude Copart's fraud or professional negligence claims.

In reply, defendants acknowledge "[e]vidence presented in the first phase that also relates to the second phase will have to be presented again." ECF No. 347 at 2. Defendants assert this issue "can be addressed by instructing the jury that they are free to consider that evidence in the second phase of the trial." Id. According to defendants, "If [Copart's] signoffs [for Milestones 1-7] were not fraudulently induced, then they bar all claims related to Sparta's work product, including breach of contract, fraud, and professional negligence." Id. at 5.

A. Legal Standard

Rule 42(b) of the Federal Rules of Civil Procedure provides in relevant part:

For convenience, to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or more separate issues, claims, crossclaims, counterclaims, or third-party claims.

A court "has broad discretion to bifurcate a trial to permit deferral of costly and possibly unnecessary proceedings pending resolution of potentially dispositive preliminary issues." Jinro America Inc., v. Secure Invs., Inc., 266 F.3d 993, 998 (9th Cir.), amended on denial of reh'g, 272 F.3d 1289 (9th Cir.2001). Courts are more reluctant to bifurcate proceedings when there is "an overlap of factual issues." Hunter v. City & Cty. of San Francisco, No. 11-4911, 2012 WL 4831634, at *10 (N.D.Cal. Oct.10, 2012). Three factors are relevant to the inquiry: convenience, prejudice to the parties, and judicial economy. Id.; see also Conboy v. Wynn Las Vegas LLC, No. 2:11-CV-1649 JCM (CWH), 2013 WL 1701073, at *14 (D.Nev. Apr.18, 2013) (stating that a court considering bifurcation weighs "convenience, prejudice, judicial economy, risk of confusion and whether the issues are clearly separable").

B. Analysis

Defendants' position is undermined by a misreading of the court's summary judgment order. ECF No. 264. The court recounts the relevant portions of that order below.

When addressing Copart's "contract-related claims" in a clearly delineated section of its summary judgment order, the court determined "Copart may still proceed on the first seven milestones under a fraudulent inducement theory." ECF No. 364 at 9, 12. The court concluded, "Copart may continue to seek a remedy for the first seven milestones, but only under its fraudulent inducement theory." Id. The court reasoned that Copart had waived "its right to sue for defects within the deliverables associated with [the first seven] milestones" by accepting the milestones through signing a "Milestone Sign Off" form. Id. at 11. The court also determined Copart "is precluded from pursuing damages related to the remaining eight milestones for which it never paid (Milestones 8 through 15)." Id. at 13. All of this analysis addressed Copart's breach of contract claims.

When discussing the parties' fraud-related claims, also in a clearly delineated section of its order, id. at 19-27, the court first identified six statements that could possibly support Copart's various fraud claims. Id. at 22. The court then limited Copart's fraudulent inducement claim to a single statement: "Sparta's reassurances that it would ensure '100% CAS functionality.'" Id. at 23. Yet the court found Copart could pursue at trial five of the sixstatements, or representations, related to its fraud claim. Id. at 25. The court also addressed defendants' argument that "the economic loss rule bars Copart's claims." Id. Citing to its previous order, ECF No. 55 at 18-19, the court concluded its "prior order largely precludes" reliance on the economic loss rule bar. ECF No. 264 at 25. As a specific example, the court determined Copart can base its fraudulent inducement claim "on statement (3), Sparta's assurance of '100% CAS functionality.'" Id. After identifying that example for Copart's fraudulent inducement claim, the court concluded, "The economic loss rule does not preclude Copart's fraud-related claims." Id. at 25. The court reiterated the survival of both "Copart's fraudulent inducement and fraud claims" as limited to "reliance on specific statements," distinct from the court's limiting recovery "on the first seven milestones" to Copart's "fraud theory." Id. at 13 (limiting Copart "to its fraud theory to recover on the first seven milestones" and precluding contract damages "related to the remaining eight milestones for which it never paid"); id. at 23 ("Copart may proceed only on . . . statement (3) for its fraudulent inducement claim, and on all six statements for its fraud claim."); id. at 47 (summarizing order on contract and fraud claims).

Also relevant here, the court denied summary judgment on Copart's professional negligence claim as against Sparta. Id. at 48.¹ The court now applies the factors relevant to determining if bifurcation of the impending trial is warranted.

1. Convenience to the Parties

Defendant argues "the vast majority of Copart's claims fall like dominoes" if Copart fails to prove fraudulent inducement. ECF No. 290 at 4. But Copart's fraud claims are not dependent on proving fraudulent inducement as explained above and previously in the court's summary judgment order. See ECF No. 264 at 9-13, 19-27, 47. Thus, the vast majority ofCopart's claims do not necessarily fail if Copart fails to prove fraudulent inducement. See id. at 47-48 (discussing remaining Copart claims of fraud, unfair competition, unjust enrichment, breach of implied covenant of good faith and fair dealing, declaratory relief, trade secret misappropriation, professional negligence, and computer hacking claims). Additionally, the court has twice rejected defendants' claims that the economic loss rule bars Copart's fraud claims. ECF Nos. 55 at 18-19 & 264 at 25. In light of the claims that will remain in the case even if Copart fails to prove fraudulent inducement, and the overlap in evidence relevant to defendants' proposed first and second phases of trial, the court finds bifurcation will not serve the purpose of convenience.

2. Avoiding Prejudice

Defendants assert a lack of bifurcation will prejudice the jury because "Copart will undoubtedly attempt to throw in every potentially negative comment and action by Sparta to sow juror confusion over what misrepresentations can support its claims" if the court permits Copart "the opportunity to proceed on both fraudulent inducement and general fraud at once." ECF No. 290 at 7-8. And according to defendants, a bifurcated trial "would allow the [c]ourt to revive Sparta's quasi-contract claims if Copart prevails on fraudulent inducement" because "[t]he court barred Sparta from pursuing quasi-contract claims while there is a valid contract at issue." Id. (citing ECF No. 264 at 16-19.

Copart contends even if it could not prove fraudulent inducement, Copart "would still be able to present much of th[e] same evidence in support of its non-contract claims." ECF No. 341 at 5. "[P]resentation of the same evidence to the jury again would result in waste and confusion . . . ." Id. (citing Hoyt v. Career Sys. Dev. Corp., No. 07-CV-1733-BEN (RBB), 2010 WL 2653368, at *3 (S.D. Cal. July 1, 2010) (denying bifurcation in part because it "would not preclude having 17 [of 20] witnesses appear and testify to one issue and then return at a later date to testify again on other issues" despite possibility of shortening second phase of trial). Copart also asserts defendants will not suffer prejudice due to unavailable...