Ninth Circuit Reverses Order in Contract Dispute

Coding On A Laptop

The U.S. Court of Appeals for the Ninth Circuit found that the U.S. District Court for the Central District of California “wrongly ruled against a DXC Technology (“DXC”) unit in a $5.4 million payment dispute with a subcontractor on a NASA deal, saying the DXC subsidiary had not waived its defenses in the case,” Law360 reported.

Larson LLP is representing Enterprise Services LLC (“Enterprise”), the DXC subsidiary that subcontracted with KST Data, Inc. (“KST”) to provide information technology-related hardware and services to NASA. KST sued Enterprise for nonpayment of invoices totaling over $5.4 million and, upon Enterprise’s successful move to dismiss, later filed a second amended complaint. The district court granted summary judgment sua sponte (“without prompting”) to KST on the breach of contract claim.

Although Enterprise had raised affirmative defenses in its answer to KST’s first amended complaint, it did not file a new answer to the second amended complaint that pled those affirmative defenses.

“When KST moved for a formal judgment, Enterprise attempted to raise affirmative defenses, claiming fraud, misrepresentation, and ‘unclean hands’ from KST. But the district court rejected those arguments, saying Enterprise’s failure to file an answer to the second amended complaint was effectively a waiver of those defenses,” Law360’s article reported.

Enterprise appealed, and partner Stephen G. Larson presented an oral argument on his client’s behalf to the Ninth Circuit on July 6, 2020.

Law360 summarized U.S. District Judge Eric F. Melgren’s opinion filed on Nov. 17 as, “it was an error of law that the district court granted summary judgment sua sponte without giving Enterprise a chance to assert its defenses, although that error would not matter if Enterprise had waived those defenses through its failure to file an answer . . . Because Enterprise was not required to reassert its affirmative defenses in response to the second amended complaint, it should have had an opportunity to raise them before the district court granted summary judgment to KST.”

“Enterprise Services LLC’s defenses for withholding payments from subcontractor KST Data Inc. did not need to be reasserted after KST filed an amended complaint involving the same claims Enterprise had previously asserted its defenses against,” the three-judge panel ruled. “Therefore, a district court had wrongly treated Enterprise’s lack of an answer to that amended complaint as a waiver of those arguments.”

The panel reversed and remanded the case to the district court. 

The Larson LLP team representing Enterprise in the case and successful appeal includes Stephen, partners Hilary Potashner and Paul A. Rigali, and associates Chaitra G. Betageri and Emilie J. Zuccolotto. 

Read the full article by Daniel Wilson of Law360 covering the ruling here.


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