Humetrix, Inc. v. Gemplus S.C.A.
268 F.3d 910 (2001)
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Rule of Law:
A plaintiff's use of equitable estoppel as a defense to the statute of frauds does not limit the available remedies for the underlying breach of contract claim, and lost profits may be recovered so long as they are proven with reasonable certainty, even by a new or developing business venture.
Facts:
- In 1994, Dr. Bettina Experton of Humetrix, Inc. began negotiations with Dr. Bruno Lassus of Gemplus S.C.A. to bring Gemplus's Smart Card technology to the U.S. health care market.
- While initially envisioned as a simple reseller relationship, the discussions evolved into what the parties described as a 'partnership/collaboration', with Gemplus directing Humetrix to draft a new 'Representative Agreement' to reflect this enhanced role.
- At Gemplus's suggestion, Humetrix developed the name 'Vaccicard' for a vaccination Smart Card and filed a U.S. trademark application for it on June 14, 1995.
- A senior Gemplus manager, Guy Guistini, who had a financial interest in a French company (Inovaction) with similar trademarks, learned of Humetrix's filing and demanded its withdrawal.
- Around the same time, Gemplus acquired a new U.S. subsidiary capable of performing the services Humetrix was supposed to provide, without informing Humetrix.
- After assuring Humetrix that the new partnership agreement would be signed, Gemplus abruptly ceased all communication for six weeks.
- Gemplus ultimately informed Humetrix that it viewed their relationship as a simple reseller agreement, not a partnership, and that Humetrix had no right to the Vaccicard trademark.
- As a result of Gemplus's refusal to cooperate, Humetrix was forced to cancel its contracts with U.S. customers.
Procedural Posture:
- Humetrix, Inc. sued Gemplus S.C.A., Inovaction, and Guy Guistini in U.S. District Court for breach of contract, breach of fiduciary duty, and other claims.
- Gemplus moved to compel arbitration based on an agreement between its subsidiary (Gemplus USA) and Humetrix, which the district court denied.
- On an interlocutory appeal, the U.S. Court of Appeals for the Ninth Circuit affirmed the denial, holding Gemplus was not a party to the agreement containing the arbitration clause.
- The case proceeded to a jury trial in the district court.
- The jury found Gemplus liable for breaching two oral agreements (a Sales Agreement and a Partnership Agreement) and awarded Humetrix $15 million in damages.
- The jury also declared Humetrix the proper owner of the 'Vaccicard' trademark in the United States.
- Gemplus and Inovaction appealed the district court's judgment entered on the jury verdict to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does a plaintiff's use of equitable estoppel to defeat a statute of frauds defense limit its recovery for breach of an oral contract to reliance damages, thereby precluding an award of lost profits?
Opinions:
Majority - Tallman, J.
No, a party's use of equitable estoppel as a shield to defeat a statute of frauds defense does not limit its breach of contract damages to reliance damages or preclude the recovery of lost profits. The court distinguished between promissory estoppel, which is a 'sword' used to create a cause of action and may limit damages to reliance, and equitable estoppel, which is a 'shield' used to bar a party from raising a defense. Because Humetrix used equitable estoppel merely to prevent Gemplus from using the statute of frauds to invalidate their oral agreements, the underlying claims remained for breach of contract. Under California law, the remedy for breach of contract aims to provide the plaintiff with the 'equivalent of the benefits of performance,' which includes lost profits if they can be proven with reasonable certainty. The court rejected Gemplus's argument that lost profits were too speculative under the 'new business rule,' noting that the rule is not absolute and Humetrix provided substantial evidence, including expert testimony based on closed contracts, market forecasts, and Gemplus's own success, to support the jury's award.
Analysis:
This decision provides an important clarification on the relationship between estoppel doctrines and contract remedies. By sharply distinguishing equitable estoppel (a defensive tool) from promissory estoppel (a cause of action), the court affirmed that overcoming a procedural defense like the statute of frauds does not alter the substantive damages available for the underlying breach. Furthermore, the court's flexible application of the 'new business rule' reinforces the modern trend of allowing lost profit damages for new ventures, provided there is a solid evidentiary foundation. This precedent is significant for startups and companies entering new markets, as it signals that they can recover the expected benefits of a partnership even if a defendant breaches before a track record of profits is established.
