                                                                             FILED
                            NOT FOR PUBLICATION                               JAN 31 2012

                                                                          MOLLY C. DWYER, CLERK
                     UNITED STATES COURT OF APPEALS                        U .S. C O U R T OF APPE ALS




                            FOR THE NINTH CIRCUIT



MATT MALEK MADISON,                               No. 10-17484

              Plaintiff-counter-defendant -       D.C. No. 5:07-cv-04211-RMW
              Appellee,

  v.                                              MEMORANDUM *

FONAR CORPORATION,
a Delaware corporation,

              Defendant-counter-claimant -
              Appellant.



                   Appeal from the United States District Court
                       for the Northern District of California
                 Ronald M. Whyte, Senior District Judge, Presiding

                      Argued and Submitted January 17, 2012
                            San Francisco, California

Before: McKEOWN, CLIFTON, and BYBEE, Circuit Judges.

       Fonar Corporation appeals the district court’s judgment, following a bench

trial, against Fonar on its cross claims for breach of contract and breach of the

covenant of good faith and fair dealing, as well as the court’s judgment in favor of


        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Matt Malek Madison in the amount of $300,000 plus prejudgment interest. We

affirm.

      Fonar argues that the district court erred in concluding that Madison did not

breach the contract because the contract, as contained in the Terms of Sale and the

contents of Madison’s cover letter of June 29, 2005, imposed on Madison the

obligation to not only search for sites, but also to actually submit those sites to

Fonar for approval. The court interpreted the contract to place no such requirement

on Madison. We agree. Fonar does not dispute that the contract did not explicitly

state that Madison was under an obligation to search for sites or that he was

required to submit sites for approval. Rather, as the district court concluded, the

contract allowed Madison to elect not to proceed if he did not find sites suitable to

him or if Fonar did not approve sites that he proposed. In a reciprocal manner, the

contract allowed Fonar to not proceed with the sale if it chose not to approve sites

submitted by Madison, and the contract provided that Fonar would not commence

production until an additional deposit was paid by Madison. Further, Madison’s

cover letter of June 29, 2005, emphasized the refundable nature of the deposit by

discussing ongoing feasibility studies and including a provision for the payment of

interest on the deposit. Fonar offers no reason to doubt the credibility findings of

the district court with respect to the extrinsic evidence Fonar offered in support of


                                            2
a more robust reading of the contract. The trial transcript similarly offers no basis

for determining that the trial court’s finding was clearly erroneous.

      Fonar further argues that even if Madison did not breach the explicit terms

of the contract, he violated California law by breaching the covenant of good faith

and fair dealing by making no attempt, or at best a minimal attempt, to find a

suitable location for the MRI machines. Under California contract law, “[i]n every

contract there is an implied covenant of good faith and fair dealing that neither

party will do anything which injures the right of the other to receive the benefits of

the agreement.” Schoolcraft v. Ross, 146 Cal. Rptr. 57, 59 (Cal. Ct. App. 1978)

(internal quotation marks omitted). However, “[t]he covenant . . . cannot be

endowed with an existence independent of its contractual underpinnings. It cannot

impose substantive duties or limits on the contracting parties beyond those

incorporated in the specific terms of their agreement.” Guz v. Bechtel Nat’l, Inc.,

24 Cal. 4th 317, 349-50 (2000) (internal citations and quotation marks omitted).

We agree with the district court that the contract did not require that Madison

engage in any particular type of search, nor did it require that Madison submit

proposed sites to Fonar for approval. Within the context of this contract, the district

court did not err in concluding that Madison met his obligations under the covenant

of good faith and fair dealing. Further, Fonar has failed to show that the district


                                           3
court committed clear error in determining that Madison made at least a minimal

effort to find space for the MRI machines.

       Finally, Fonar appeals the district court’s judgment that Madison was

entitled to a refund of the deposit. Fonar argues that, in order to qualify for the

refund, the contract required Madison to make a reasonable attempt to find suitable

sites, and if none were found to request a refund within twelve months. The district

court held that the refund was not contingent on either one of these conditions, and

we affirm. As the district court noted, the Terms of Sale contemplated an automatic

trigger for a refund of the deposit: the lapse of a year without an approved site

location for each system. Madison was not required to notify Fonar that the year

had elapsed or the reason for not obtaining an approved site. Fonar also contends

that Madison’s letter of June 29, 2005, added a provision to the contract requiring

Madison to request the deposit before the end of a twelve-month period. Contrary

to this, the district court, in reading the contract in its entirety, found that the

deposit refund was triggered automatically at twelve months, and Madison’s letter

did not alter this arrangement. Instead, Madison’s letter provided for the payment

of interest on the deposit, commencing on the day he requested the refund. We

affirm the district court’s judgment that Madison is entitled to an award of the




                                             4
$300,000 deposit with prejudgment interest from the date of Fonar’s breach, July

1, 2006.

      AFFIRMED.




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