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`UNITED STATES COURT OF APPEALS
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`FOR THE NINTH CIRCUIT
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`FILED
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`OCT 17 2023
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`MOLLY C. DWYER, CLERK
`U.S. COURT OF APPEALS
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` Plaintiff-Appellee,
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`NETLIST INC., a Delaware corporation,
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` v.
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`SAMSUNG ELECTRONICS CO., LTD., a
`Korean corporation,
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` Defendant-Appellant.
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` Plaintiff-Appellant,
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`NETLIST INC., a Delaware corporation,
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` v.
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`SAMSUNG ELECTRONICS CO., LTD., a
`Korean corporation,
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` Defendant-Appellee.
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`No. 22-55209
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`D.C. No.
`8:20-cv-00993-MCS-ADS
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`
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`MEMORANDUM*
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`No. 22-55247
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`
`D.C. No.
`8:20-cv-00993-MCS-ADS
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`
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`Appeal from the United States District Court
`for the Central District of California
`Mark C. Scarsi, District Judge, Presiding
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`Argued and Submitted June 8, 2023
`Pasadena, California
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`*
` This disposition is not appropriate for publication and is not precedent
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`except as provided by Ninth Circuit Rule 36-3.
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`Before: M. SMITH and DESAI, Circuit Judges, and AMON,** District Judge.
`Partial Dissent by Judge DESAI.
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`This appeal arises from a contract dispute between Samsung Electronics Co.,
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`Ltd. and Netlist Inc. Samsung appeals the district court’s (1) grant of partial
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`summary judgment in favor of Netlist on Netlist’s breach of contract claims, (2)
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`award of nominal damages, (3) grant of a declaratory judgment that Netlist properly
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`terminated the contract, and (4) preclusion of Samsung’s affirmative defenses at
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`trial. Netlist cross appeals the district court’s preclusion of certain fees pursuant to
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`the contract’s consequential-damages bar. We assume the parties’ familiarity with
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`the briefing and record. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we
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`affirm in part and reverse and remand in part.
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`1.
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`The district court erred in granting Netlist summary judgment on its
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`claim that Samsung violated § 6.2 of the Joint Development and License Agreement
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`(“JDLA”), because the provision is ambiguous as to whether Samsung’s supply
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`obligation is limited to the now-failed joint development project (the “JDP”) or
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`applies more broadly to the parties’ overall business relationship. See L.F. v. Lake
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`Wash. Sch. Dist. #414, 947 F.3d 621, 625 (9th Cir. 2020) (grant of summary
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`judgment reviewed de novo). Section 6.2 requires Samsung to “supply NAND and
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`** The Honorable Carol Bagley Amon, United States District Judge for
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`the Eastern District of New York, sitting by designation.
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`2
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`DRAM products to Netlist on Netlist’s request at a competitive price.” The
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`substantive law of New York governs this dispute. To assess contract ambiguity,
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`we consider “the intention of the parties . . . [as] gathered from the four corners of
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`the instrument.” Beal Sav. Bank v. Sommer, 865 N.E.2d 1210, 1213 (N.Y. 2007).
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`And in determining the parties’ intent as to a particular provision, New York courts
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`read “the entirety of the agreement in the context of the parties’ relationship and
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`circumstances,” rather than isolating distinct provisions of the agreement. In re
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`Riconda, 688 N.E.2d 248, 252 (N.Y. 1997).
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`Standing alone, the plain language of § 6.2 favors Netlist’s interpretation: that
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`Samsung must fulfill all NAND and DRAM orders by Netlist for whatever purpose.
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`See Vt. Teddy Bear Co. v. 538 Madison Realty Co., 807 N.E.2d 876, 879 (N.Y. 2004)
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`(“[C]ourts should be extremely reluctant to interpret an agreement as impliedly
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`stating something which the parties have neglected to specifically include.” (citation
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`omitted)). Read as an integrated whole, however, the contract’s apparent purpose as
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`derived from its title, structure, and related provisions make § 6.2 “reasonably
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`susceptible of more than one interpretation.” See Chimart Assocs. v. Paul, 489
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`N.E.2d 231, 233 (N.Y. 1986).
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`First, the JDLA has two stated purposes: (1) developing a new NVDIMM-P
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`product (i.e., the JDP), and (2) patent cross-licensing. The title and preamble of the
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`agreement exclusively reference these two topics, and each substantive section
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`3
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`corresponds entirely to one of the two goals. In this context, it is reasonable to
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`interpret § 6.2 as tethered to one of those projects rather than as a separate,
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`freestanding obligation. See Hooper Assocs., Ltd. v. AGS Comps., Inc., 548 N.E.2d
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`903, 905 (N.Y. 1989) (“Words in a contract are to be construed to achieve the
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`apparent purpose of the parties.”).
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`Second, the title and structure of § 6 support a finding of ambiguity. Section
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`6, “Supply of Components,” requires both parties to supply certain products to the
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`other upon request. Section 6.1 requires Netlist to “provide Samsung any
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`NVDIMM-P controller,” while § 6.2 requires Samsung to “supply NAND and
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`DRAM products.” Netlist’s view is that because § 6.1 explicitly links Netlist’s
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`supply obligation to the JDP, while § 6.2 does not, that omission must be viewed as
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`intentional. That is one plausible reading. It would also be reasonable to read §§ 6.1
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`and 6.2 as complementary mirror provisions that describe the parties’ obligations to
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`provide components of the NVDIMM-P product. See N.L.R.B. v. SW Gen., Inc., 137
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`S. Ct. 929, 940 (2017) (“The expressio unius canon applies only when circumstances
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`support a sensible inference that the term left out must have been meant to be
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`excluded.” (internal quotation marks and alteration omitted)).
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`Third, if Netlist’s interpretation of § 6.2 is correct, then the provision would
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`be a significant outlier in the overall agreement. As noted, all other substantive
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`provisions of the JDLA concern either the JDP or cross-licensing and describe the
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`4
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`parties’ rights and obligations related to those elements in detail. But if § 6.2 is
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`properly understood as an unbounded supply obligation, it would represent a
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`separate, third element of the JDLA. In addition, it would be unusual for this
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`purportedly important, discrete obligation to be referenced only once in a single
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`sentence in the entire agreement. Accordingly, we conclude that § 6.2 could
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`reasonably be understood as restricted to the NVDIMM-P project.1 See Hooper, 548
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`N.E.2d at 905 (“Although the words might seem to admit of a larger sense, yet they
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`should be restrained to the particular occasion and to the particular object which the
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`parties had in view.” (internal quotation marks and citation omitted)).
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`Because we conclude that § 6.2 is ambiguous as a matter of law, we remand
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`to the district court to consider in the first instance whether the extrinsic evidence
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`“creates a genuine issue of material fact” as to the provision’s meaning. See
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`MacIntyre v. Carroll Coll., 48 F.4th 950, 956 (9th Cir. 2022) (“[T]he remaining
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`issues are not purely legal and require us to determine whether the evidence creates
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`a genuine issue of material fact. The district court is thus better suited to consider
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`these issues in the first instance.”).
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`2.
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`The district court erred in granting Netlist judgment on its claim that
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`1 To the extent Samsung contends that the district court independently erred by
`awarding nominal damages following the jury’s finding that Netlist had not suffered
`actual damages from the breach of § 6.2, we disagree. See Kronos, Inc. v. AVX
`Corp., 612 N.E.2d 289, 292 (N.Y. 1993).
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`5
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`Samsung breached § 3 of the JDLA by erroneously withholding $1.32 million of its
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`$8 million payment to Netlist and paying that sum to the Korean tax authority.
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`Section 3 requires Samsung to pay Netlist $8 million in non-recurring engineering
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`fees, less any withholding taxes required by Korean law. The Korean tax authority
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`ultimately concluded that the fees were not subject to withholding. The district court
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`determined that “the reasonableness of Samsung’s position [on whether the taxes
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`were properly withheld] is immaterial to whether it breached its obligation.” We
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`disagree. Section 3.2 provides that if Samsung deducts withholding taxes, it must
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`“reasonably cooperate with Netlist in any lawful efforts to claim a credit or refund
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`or exemption with respect to any such withholding taxes.” Because § 3.2
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`contemplates that Samsung may reasonably but erroneously withhold taxes, we do
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`not interpret § 3.1 as providing for strict liability upon an erroneous withholding.
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`See Beal Sav. Bank, 865 N.E.2d at 1213–14. A contrary holding that Samsung
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`breached § 3 by reasonably misinterpreting Korean tax law would also produce
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`absurd results and be inconsistent with the parties’ reasonable expectations. See
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`Uribe v. Merchs. Bank of N.Y., 693 N.E.2d 740, 743 (N.Y. 1998) (construing
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`contract in accordance with the “reasonable expectation and purpose of the ordinary
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`businessperson” (alteration and citation omitted)). Accordingly, we reverse the
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`district court’s entry of judgment in Netlist’s favor on the § 3 breach of contract
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`6
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`claim and remand with instructions to enter judgment for Samsung.2
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`3.
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`The district court erred in granting a declaratory judgment that Netlist
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`properly terminated the JDLA because disputed fact issues precluded summary
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`judgment on the materiality of Samsung’s alleged breach of § 6.2. “Under New York
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`law, for a breach of a contract to be material, it must ‘go to the root of the agreement
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`between the parties.’” Frank Felix Assocs., Ltd. v. Austin Drugs, Inc., 111 F.3d 284,
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`289 (2d Cir. 1997) (citation omitted). New York courts consider several factors in
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`assessing materiality, including, among others: the extent to which the injured party
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`will be deprived of the benefit which he reasonably expected, the likelihood that the
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`party failing to perform or to offer to perform will cure his failure, the quantitative
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`character of the default, and the breaching party’s good faith or willfulness. See
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`Hadden v. Consol. Edison Co. of N.Y., Inc., 312 N.E.2d 445, 449 (N.Y. 1974);
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`Restatement (Second) of Contracts § 241 (Am. L. Inst. 1981). The record reflects
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`that several of these factors hinge upon disputed facts. For example, the parties
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`dispute whether—assuming that the district court correctly construed § 6.2—the
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`exchange of Samsung’s mandatory supply obligation in return for Netlist’s patent
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`2 On cross appeal, Netlist challenges the district court’s conclusion that the JDLA’s
`provision concerning consequential damages barred recovery of the fees Netlist paid
`to its tax consultant, PricewaterhouseCoopers, for assistance in obtaining a refund
`of the erroneously withheld taxes. Because we hold that Samsung did not breach
`§ 3 of the JDLA, and therefore that Netlist is not owed damages resulting from the
`purported breach, we need not address whether the district court properly barred
`recovery of the fees.
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`7
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`licenses was “the centerpiece” of the agreement.
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`We reject Samsung’s contention that Netlist’s declaratory-judgment claim
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`fails for the independent reason that Netlist waived its right to terminate the contract
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`by delaying termination proceedings until 2020. The district court properly
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`determined that given the JDLA’s no-waiver provision, Netlist’s failure to act upon
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`notice of the breach does not constitute a clear manifestation of intent to waive its
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`termination rights. See Gilbert Frank Corp. v. Fed. Ins. Co., 520 N.E.2d 512, 514
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`(N.Y. 1988) (requiring “clear manifestation of intent by [one party] to relinquish
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`[contractual] protection”). We reverse the district court’s entry of a declaratory
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`judgment and remand for further proceedings.
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`4.
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`The district court correctly precluded Samsung from asserting at trial
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`affirmative defenses of waiver, estoppel, and acquiescence. Samsung pleaded all
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`three defenses in its answer, but did not raise them in response to Netlist’s motion for
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`partial summary judgment or in its own motion for summary judgment. Samsung
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`therefore abandoned the defenses. Where a movant puts liability at issue on summary
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`judgment, a defendant opposing summary judgment may not decline to raise an
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`affirmative defense that, if successful, would defeat the movant’s claim, and then
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`seek to assert that defense at trial. See Fed. R. Civ. P. 56(a).3
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`3 The district court also properly precluded Samsung from raising an election of
`remedies affirmative defense. Samsung failed to plead the defense in its answer, see
`In re Adbox, Inc., 488 F.3d 836, 841 (9th Cir. 2007); Fed. R. Civ. P. 8(c)(1), and the
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`8
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`AFFIRMED IN PART AND REVERSED AND REMANDED IN PART.
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`The parties shall bear their own costs.
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`court did not abuse its discretion in finding that Samsung had not shown “good
`cause” to amend its answer at the close of discovery, see Johnson v. Mammoth
`Recreations, Inc., 975 F.2d 604, 607–08 (9th Cir. 1992).
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`9
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`Netlist Inc. v. Samsung Electronics Co., Ltd., No. 22-55209
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`DESAI, Circuit Judge, dissenting in part:
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`FILED
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`OCT 17 2023
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`MOLLY C. DWYER, CLERK
`U.S. COURT OF APPEALS
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`I respectfully dissent from Section 1 of the memorandum disposition. The
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`majority’s means-to-an-end analysis of § 6.2 is a departure from longstanding rules
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`of contract interpretation, particularly when interpreting a contract negotiated at an
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`arm’s length between two sophisticated parties. Worse, my colleagues’ perfunctory
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`conclusion that § 6.2 is ambiguous makes doing business harder. It forces contracting
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`parties to anticipate and expressly disclaim every conceivable limiting construction
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`to avoid an alleged ambiguity. I would not impose that burden.
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`Section 6.2 is clear and unambiguous: Samsung agreed to “supply NAND and
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`DRAM products to Netlist on Netlist’s request at a competitive price.” That
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`provision means what it says. The majority concedes, as it must, that “the plain
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`language of § 6.2 favors Netlist’s interpretation.” Mem. Disp. at 3. Yet my colleagues
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`bend over backwards to invent an ambiguity based on the agreement’s “apparent
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`purpose as derived from its title, structure, and related provisions.” Mem. Disp. at
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`3.1 Their arguments are unpersuasive.
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`1
`The majority’s decision relies on Samsung’s made-for-litigation theory that §
`6.2 is ambiguous. But Samsung never even argued the agreement was ambiguous
`until after it decided to stop fulfilling its supply obligations. In fact, Samsung raised
`its ambiguity argument for the first time only after the district court denied its motion
`for judgment on the pleadings.
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`1
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`For starters, my colleagues overreach by concluding without any basis that §
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`6.2 is “a significant outlier in the overall agreement.” Mem. Disp. at 4. The
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`majority’s own notions about the fairness of Samsung’s supply obligation go far
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`beyond interpreting the “four corners of the contract,” Ellington v. EMI Music, Inc.,
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`21 N.E.3d 1000, 1003 (N.Y. 2014), and instead infer, “under the guise of judicial
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`construction, . . . additional requirements to relieve a party from asserted
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`disadvantage flowing from the terms actually used.” Collard v. Inc. Vill. of Flower
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`Hill, 421 N.E.2d 818, 823 (N.Y. 1981). Those inferences violate New York’s
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`“established contract law, which focuses on the parties’ chosen language, by
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`injecting considerations untethered to the words that the parties included in their
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`agreement.” Donohue v. Cuomo, 184 N.E.3d 860, 870 (N.Y. 2022). When “a contract
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`‘was negotiated between sophisticated, counseled business people negotiating at
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`arm’s length,’ courts should be especially ‘reluctant to interpret an agreement as
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`impliedly stating something which the parties have neglected to specifically
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`include.’” 2138747 Ontario, Inc. v. Samsung C & T Corp., 103 N.E.3d 774, 780
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`(N.Y. 2018) (quoting Vt. Teddy Bear Co. v. 538 Madison Realty Co., 807 N.E.2d
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`876, 879 (N.Y. 2004)). Yet that is what the majority did here.
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`Although the majority’s decision purports to rely on the plain text of § 6.2, it
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`goes further than the plain text; it takes a simple clause—“Samsung will supply
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`NAND and DRAM products to Netlist”—and inserts the words “in connection with
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`2
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`the JDP.” But if the parties meant to limit Samsung’s supply obligation to NAND
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`and DRAM used only in connection with the JDP, they would have said so. See
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`Ellington, 21 N.E.3d at 1004 (“If the parties intended to bind future affiliates they
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`would have included language expressing that intent.”); Riverside S. Plan. Corp. v.
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`CRP/Extell Riverside, L.P., 920 N.E.2d 359, 365 (N.Y. 2009) (holding that the plain
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`language of a contract’s sunset clause applied to the entire agreement when “the
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`parties could have drafted an agreement that restricted the scope of the sunset clause”
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`but declined to do so). Indeed, the majority acknowledges that the parties did exactly
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`that in Netlist’s supply obligation in § 6.1. Other parts of the agreement similarly
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`include limiting language where the parties saw fit to include it. See, e.g., § 4.1
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`(discussing ownership of inventions “arising out of the JDP”); § 1 (defining a term
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`used in the agreement to describe technology created “in the course and within the
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`scope of the JDP”). We must give meaning to the omission of similar language in §
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`6.2. E.g., Quadrant Structured Prods. Co. v. Vertin, 16 N.E.3d 1165, 1172 (N.Y.
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`2014) (explaining that the expressio unius maxim precludes courts from reading
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`language into a contract provision that a “sophisticated drafter” omitted).
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`Respectfully, my colleagues overstep by rewriting § 6.2 to add language Samsung
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`failed to include.
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`The majority’s analysis next turns to the title and structure of § 6 to justify its
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`conclusion that § 6.2 is ambiguous. But the title and structure confirm just the
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`3
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`opposite. Section 6’s title (“Supply of Components”) is general, and both Samsung
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`and Netlist develop and manufacture components generally, not just for the JDP. All
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`but one of the provisions in § 6 discuss the parties’ rights and obligations related to
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`the supply of components generally. Section 6.3 preserves both parties’ rights to
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`make “semiconductor components” and sell them to third parties. Section 6.4
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`provides that neither party must buy “any products” from the other. And Section 6.2
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`requires Samsung to supply “NAND and DRAM products” to Netlist at competitive
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`prices. In the only provision tied to a JDP-specific product (§ 6.1), the parties
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`expressly said so. It runs afoul of basic principles of contract interpretation to imply
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`a similar limitation into any other provision in § 6.
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`Finding no support in the terms of the agreement, the majority’s decision
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`settles on the recitals as the basis for its finding that § 6.2 is ambiguous. Mem. Disp.
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`at 3. But nothing in the recitals makes § 6.2 ambiguous. The recitals state that two
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`main goals of the agreement were developing a new NVDIMM-P product through
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`the JDP and cross-licensing patents. In their quest to find an ambiguity where none
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`exists, my colleagues again read too much into the plain text. Parties often have
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`many reasons for executing contracts, and they need not list every form of
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`consideration in the recitals. In any event, the supply obligation as written in § 6.2
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`furthers these goals or, at a minimum, there is nothing inconsistent about the
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`agreement’s general purposes and the clear supply obligation in § 6.2. Nor can the
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`4
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`recitals alter the plain language of a substantive term. See Jones Apparel Grp., Inc.
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`v. Polo Ralph Lauren Corp., 791 N.Y.S.2d 409, 410 (App. Div. 2005) (“Since the
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`contract is unambiguous on its face, there is no need to refer to its recitals, which are
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`not part of the operative agreement.”).
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`In short, every purportedly “reasonable” justification the majority’s decision
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`constructs to conclude that § 6.2 is ambiguous requires inserting words in § 6.2,
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`implying policy considerations, and looking beyond the four corners of the
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`agreement. That is not this court’s role. A contract “that is complete, clear and
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`unambiguous on its face must be enforced according to the plain meaning of its
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`terms.” Greenfield v. Philles Recs., Inc., 780 N.E.2d 166, 170 (N.Y. 2002).
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`I respectfully dissent from the portion of the majority’s decision holding that
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`§ 6.2 is ambiguous. I would affirm the district court’s summary judgment on Netlist’s
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`breach of contract claim over § 6.2.
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`5
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`