JACQUELINE SCOTT CORLEY, United States Magistrate Judge.
Plaintiff Caleb Avery t'Bear sued Defendant Barry Forman in California state court for breach of fiduciary duty, declaratory relief, and an accounting arising out of a failed business venture.
Beginning in 2006, the parties discussed plans for creating "a series of affiliated domestic and foreign companies" referred to by Plaintiff as "The FairWay Group" ("FairWay"), to monetize intellectual property (the "FairWay IP") developed by Plaintiff "for pricing offerings of securities and other assets." (Dkt. Nos. 1-1 at ¶ 6; 29 at ¶ 6; 99-1 at ¶ 3.) The entities involved include, "Urso Ltd (a Belize company) ("Urso"), FairWay IP Holdings, Ltd (a Cayman Island company) ("FairWay IP Holdings"), FairWay Financial U.S., Inc. (a Delaware company), FairWay Pricing Technologies, LLC (a Delaware company) [("FairWay Pricing") ], and FairWay International Kft
In May 2008, Plaintiff "assigned to Urso as corporate assets all personal patents, trademarks, and business plans related to FairWay inventions or businesses." (Dkt. No. 99-4, Ex. 44 at 7.) In December 2011, Plaintiff transferred ownership of the FairWay IP from Urso to FairWay IP Holdings. (Dkt. No. 99-4, Ex. 55 at 165.) Prior to August 2016, Plaintiff held a 100% ownership interest in Urso; Plaintiff currently owns 25% of the company and remains its president.
Between April 2006 and October 2011, Defendant made 33 loans to Plaintiff—in the form of promissory notes—to fund FairWay.
The total outstanding principal of the notes is approximately $ 551,433.
Between June 2007 and February 2016, Plaintiff sent Defendant 19 emails attaching spreadsheets from a file entitled "Barry Forman Loan Manager"; the spreadsheets include a summary page entitled "Personal Loans — Forman to Avery," listing "Accumulated Loans with interest." (See Dkt. No. 99-3, Ex. 34-43, 45-53.) The Loan Managers list the dates of the notes, beginning with the August 2006 note,
(Dkt. No. 99-3, Ex. 40 at 67 (bracketed language in original).) On February 29, 2016, Plaintiff sent Defendant the last Loan Manager; it references all 33 of the
(Id. at 114.)
In December 7, 2011, Plaintiff emailed Defendant
(Id. at 56 (bracketed language in original) (emphasis added).) Defendant attests that:
(Dkt. No. 99-1 at ¶ 64.) Indeed, Plaintiff's cover email states, in pertinent part: "For clarity sake, I am attaching the current Loan Manager summarizing all personal Notes outstanding from me to you and a Memorandum of Understanding outlining the carve out of the IP in the general liens on my property to now accommodate the indirect control of the IP." (Dkt. No. 99-4, Ex. 51 at 39.) Plaintiff's cover email also states that pursuant to "[t]he payout plan," Plaintiff would pay Defendant his balance within six months, "with a small balance by year-end 2012." (Id.) Defendant signed and returned the MOU to Plaintiff on December 12, 2011. (Dkt. No. 99-4, Ex. 55 at 164-65.)
On May 17, 2017, Defendant sent Plaintiff a demand letter, calling for the immediate payment of principal and interest on all outstanding loans; "specifically, those loans listed in [Plaintiff's] document entitled "Loan Manager — Barry Forman — 31 Dec 2016"...as well as any and all other loans or advances from [Defendant] to [Plaintiff] or to any of [Plaintiff's] affiliate companies." (Dkt. No. 99-2, Ex. B at 5.) The letter demanded payment by May 31, 2017. (Id.) Plaintiff did not respond to Defendant's demand, and on June 12, 2017, Defendant sent Plaintiff written notice via email and certified mail that "Plaintiff failed to make any payment of principal and interest as demanded by [Defendant's]" May 2017 letter. (Dkt. No. 99-2, Ex. C at 7.)
On January 25, 2010, Defendant proposed terms for a potential partnership to Plaintiff by sending Plaintiff a "[f]irst draft of a partnership term sheet." (Dkt. No. 103-2, Ex. K. at 176.) The term sheet includes several questions related to tax issues. (Dkt. No. 103-2, Ex. K at 177-78.) On March 9, 2010, Plaintiff responded to Defendant's proposal by emailing Defendant a "[f]irst draft" of a document entitled "Preliminary Collaboration Agreement." (Dkt. No. 103-2, Ex. E at 146.) Plaintiff's cover email noted that the draft "needs a bit of work." (Id.) The attached document states, in part:
(Id. at 147.) The draft "acknowledge[s] the preliminary nature of the agreement," and states that "as soon as practicable," the parties would "engage legal counsel experienced in the preparation and counseling regarding business partnership agreements to prepare a complete agreement
In addition to the Preliminary Collaboration Agreement, on March 9, 2010 Plaintiff forwarded to Defendant an email to Plaintiff from his then-attorney, Tim Covington.
(Id.) Indeed, the Preliminary Collaboration Agreement designates Defendant's "Executive Role" as "CEO of FairWay Financial US and other FairWay operating companies," and states that Defendant "will be employed at will and may be terminated at any time upon notice with or without cause." (Id. at 148.)
The next day, Plaintiff sent Defendant an email with the subject line "Merged draft agreements," with "[d]raft 3" of the Preliminary Collaboration Agreement attached. (Dkt. No. 103-2, Ex. M at 186.) The email states, in pertinent part:
(Id.) The third draft includes the heading "Rough Draft for Caleb's Review," and contains the same bracketed question regarding repurchase rights, bracket denoting forthcoming text regarding compensation, and blank space regarding equity participation as the initial version. The draft also inserts a new non-compete clause stating:
(Id. at 188.) The draft includes another new clause stating, pertinent part:
(Id. at 189.) The draft also includes a clause regarding liability under the agreement, stating, in pertinent part:
(Id. at 190.) As with the initial version, the third draft is not signed by either party and does not include a date.
On March 27, 2010, Plaintiff sent Defendant an email with the subject line "updated partner draft." (Dkt. No. 103-2, Ex. O at 203.) The "Compensation" section of the attached draft includes for the first time a formula for determining the parties' "share equity set forth in each major operating company set aside for founders at the time the company is established." (Id. at 205.) The section includes bracketed questions regarding the formula, including one stating:
(Id. at 206.) The version again includes the heading "Rough Draft for Caleb's Review" and contains the same bracketed question regarding repurchase rights found in the previous drafts. (Id. at 204, 207.) Also like the previous versions, the March 27 draft is not signed by either party and does not include a date.
On June 5, 2011, Plaintiff emailed Defendant stating that Plaintiff was "looking for the most current draft of the partnership proposal." (Dkt. No. 103-2, Ex. P at 217.) Minutes later, Plaintiff sent Defendant an email with the subject line "Partner Agmt" that included the "last draft [Plaintiff] had from Tim [Covington]." (Dkt. No. 103-2, Ex. Q at 221.) Plaintiff's email notes that the draft "seems incomplete to sign and the partnership formula is not really spelled out as we have in excel spreadsheets." (Id.) Further, the email states:
(Id.) The attached Preliminary Collaboration Agreement does not contain the "partnership formula" contained in the March 27 draft's "Compensation" section but does include the heading "Rough Draft for Caleb's
On September 21, 2015, Defendant sent an email to Plaintiff with the subject line "Transition." (Id. at 9.) The email states, in pertinent part:
(Id. (emphasis added).) In January 2016, Plaintiff and Mr. Covington collaborated on a draft letter to "memorialize [Defendant's] withdrawal from the FairWay Group." (Dkt. No. 103-2, Ex. C at 115.) The letter states, in part:
(Dkt. No. 103-2, Ex. R at 233.) The draft letter includes sections entitled: "Terminating Prior Equity Arrangements"; "Loan Obligations Unaffected"; "Retroactive Compensation"; "Expense Reimbursement"; "Ongoing Consultation"; and "Miscellaneous." (Id. at 233-236.) The parties continued to negotiate regarding Defendant's exit and the repayment of his loans, and at some point in February or March 2016, Defendant informed Plaintiff "that if [Defendant] were not repaid by the end of 2016, [Defendant would need to have [his] original security interest in the FairWay IP restored." (Dkt. No. 99-1 at ¶ 72.) Negotiations broke down, as reflected in an email from Plaintiff to Defendant on March 7, 2016, wherein Plaintiff states that Defendant "bargained hard" for a "full partnership," and "with those rewards come obligations, particularly to lead the charge for funding so all the pieces could be put in place and creditors (including the Forman loans) could be paid." (Dkt. No. 103-2, Ex. S at 238.)
On April 10, 2016, Mr. Covington emailed Plaintiff a proposal detailing an "alternative" loan repayment structure that included granting Defendant a "security interest...under an omnibus collateral agreement." (Dkt. No. 103-2, Ex. T at 247.) Plaintiff refused, stating: "I am still open to this [creative]; but not with security interest — non-starter [he can fuck us at the finish line]." (Id. (bracketed language in original).) Mr. Covington responded by email the next day, stating, in pertinent part:
Plaintiff filed this action in Superior Court of the State of California, County of Alameda, on January 17, 2017. (Dkt. No. 1-1 at 2.) Defendant removed the action to this Court on February 17, 2017, based on diversity jurisdiction. (Dkt. No. 1.) Thereafter, Defendant moved to dismiss the complaint, (Dkt. No. 5), and Plaintiff moved to remand the action to state court, (Dkt. No. 12). The Court denied both motions on April 28, 2017. (Dkt. No. 22.) With the Court's permission, Defendant filed an amended answer and second amended counterclaim on July 19, 2018. (Dkt. No. 84.)
On October 4, 2018, Defendant filed motions for summary judgment on his counterclaims, (Dkt. No. 99), and Plaintiff's complaint, (Dkt. No. 103). Plaintiff filed his motion for summary judgment on Defendant's counterclaims that same day, (Dkt. No. 101). The motions for summary judgment are fully briefed.
Defendant filed the instant motion for sanctions on October 12, 2018. (Dkt. No. 111.) Plaintiff did not file an opposition. On January 7, 2019, Plaintiff moved, purportedly under Federal Rule of Civil Procedure 36, to "allow motion for leave to amend filing of amended affirmative defenses by Plaintiff." (Dkt. No. 134.) Defendant opposes Plaintiff's motion. (Dkt. No. 135.) The Court heard oral argument on all motions on January 31, 2019.
Both parties submit evidentiary objections outside of their opposition or reply briefing regarding evidence proffered by the opposing party in support of, or opposition to their respective motions for summary judgment. (See Dkt. Nos. 121 & 124.) Defendant's objections span 32 pages. (See Dkt. No. 124.) These separate filings violate Civil Local Rules 7-3(a),(c), which require that "[a]ny evidentiary and procedural objections to the [motion or opposition] must be contained within the [opposition or reply] brief or memorandum."
Defendant also submitted evidentiary objections, (Dkt. No. 126), to evidence Plaintiff submitted with his reply in support of Plaintiff's cross-motion for summary judgment on Defendant's counterclaims, (Dkt. No. 120). Under the Local Rules:
Civil L.R. 7-3(d) (emphasis added). Again, Defendant's submission fails to comply with the Local Rules. First, it contains over two pages of argument regarding how certain of Plaintiff's positions are unsupported by evidence or contradicted by other testimony. Such argument is not an objection to evidence. Second, it exceeds the 5-page limit by 5 pages. Based on Defendant's failure to comply with the Local Rules, the Court will not consider this filing.
Defendant asks the Court to take judicial notice of an adjudicative fact pursuant to Federal Rule of Evidence 201(b)(2). (Dkt. No. 100.) Under Rule 201(b)(2), a judicially noticed adjudicative fact must be one "that is not subject to reasonable dispute because it...can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201. Here, Defendant seeks "judicial notice of the fact that the Federal Reserve Discount Rate on April 28, 2006, was 5.75%." (Dkt. No. 100 at 2.) In support of this fact, Defendant submits two printouts from the "website of the Board of Governors of the Federal Reserve System"
Plaintiff requests judicial notice of the following facts in support of his cross-motion for summary judgment on Defendant's counterclaims: (1) "Federal Reserve discount rates during the period of March 2006 through October 2011"; and (2) "that over sixty (60) days have elapsed since May 22, 2018 and [Defendant] continues to seek principal and interest on the promissory notes referenced in the Second Amended Complaint." (Dkt. No. 101-14 at 1.) Plaintiff provides no documents in support of his request, however, to the extent relevant, the Court grants judicial notice of the requested facts.
On summary judgment, the movant must demonstrate "that there is no genuine
"The elements of a claim for breach of fiduciary duty are the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach." City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal.App.4th 445, 483, 80 Cal.Rptr.2d 329 (Cal. Ct. App. 1998). Defendant insists that summary judgment on Plaintiff's cause of action for breach of fiduciary duty is warranted because a partnership agreement was never "reached, finalized, formalized, dated or executed," and therefore, Defendant owed no fiduciary duty to Plaintiff. (Dkt. No. 103 at 19-24.) Further, Defendant insists that even if a partnership existed, there is no evidence that Defendant breached a fiduciary duty or that such a breach caused damages to Plaintiff. (Id. at 24-30.)
Plaintiff alleges that Defendant owed him a fiduciary duty based on the formation of a partnership between the two to operate FairWay. Under California law, a partnership is defined as "the association of two or more persons to carry on as co-owners a business for profit...whether or not the persons intend to form a partnership." Cal. Corp. Code § 16202(a). A partnership need not be formed by written agreement. See Cal. Corp. Code § 16101(10) (defining "partnership agreement" as "the agreement, whether written, oral, or implied, among the partners concerning the partnership"). The "intent of the parties revealed in the terms of their agreement, conduct, and the surrounding circumstances" is the "crucial factor" in "determining whether a partnership exists." Holmes v. Lerner, 74 Cal.App.4th 442, 454, 88 Cal.Rptr.2d 130 (Cal. Ct. App. 1999).
There is no dispute that Defendant proposed terms of a partnership to Plaintiff in January 2010, that Plaintiff responded with the Preliminary Collaboration Agreement on March 9, 2010, and that Plaintiff sent another draft the following day that purportedly "merged both drafts," (see Dkt. No. 103-2, Ex. M at 186). There is a dispute, however, as to the effect of the March 10th draft of the Preliminary Collaboration Agreement. Plaintiff testified that the parties "agreed on March 10th...that we were partners," based on the terms of the March 10th draft. (Dkt. No. 103-2, Ex. A at 27.) Plaintiff further testified that the parties then "proceeded through a course of conduct as partners." (Id.) The draft partnership agreement, together with Plaintiff's testimony and the parties' course of conduct gives rise to a genuine dispute of fact regarding the formation of a partnership.
On January 12, 2012, Defendant forwarded to Plaintiff an email from a potential investor in FairWay, asking: "What's your take, partner?" (Dkt. No. 115-2 at 6.) On December 2, 2012, Plaintiff emailed Defendant regarding FairWay, stating in pertinent part:
(Dkt. No. 115-2 at 4 (emphasis added).) Defendant responded on December 3, 2012, stating, in pertinent part: "
As previously discussed, Defendant sent an email to Plaintiff in September 2015 with the subject line "Transition." (Id. at 9.) The email states, in pertinent part:
(Id. (emphasis added).) Finally, in December 2015, Defendant sent Plaintiff an email discussing compensation and stating: "I, too, would have devoted less time had I known in advance that the economics of
Based on the parties' repeated references to their "partnership" in the correspondence above, as well as Plaintiff's testimony that the parties agreed to the terms set forth in the draft March 10 partnership agreement, the record reflects a genuine dispute as to whether the parties indeed carried on as partners.
Under California law, "a partner owes to the partnership and the other partners...the duty of loyalty and the duty of care." Cal. Corp. Code § 16404(a). Plaintiff's complaint alleges that Defendant "breached his fiduciary duty [under the partnership] to act with good faith, due care and loyalty to Plaintiff." (Dkt. No. 1 at ¶ 17.) Defendant argues that summary judgment is warranted because even if a partnership existed, Plaintiff has produced no evidence showing that Defendant breached any fiduciary duty, or produced evidence giving rise to a genuine dispute of material fact on that score. Construing the record in the light most favorable to Plaintiff, the Court agrees.
The duty of loyalty requires a partner:
Cal. Corp. Code § 16404(b)(1)-(3). Plaintiff's complaint alleges that Defendant "attempt[ed] to take assets of the jointly owned business and [usurped/compromised] business opportunities held by the partnership." (Dkt. No. 1-1 at ¶ 17.) Plaintiff's opposition further clarifies that Defendant breached the duty of loyalty by
"A partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partner's conduct furthers the partner's own interest." Cal. Corp. Code § 16404(e). Further:
Cal. Corp. Code § 16404(f). Thus, even if Plaintiff had agreed to Defendant's request, Defendant would not have breached the duty of loyalty by reinstating the security interest he previously held in Plaintiff's intellectual property as forbearance for repayment of the promissory notes. It follows that Defendant's mere request to do so as part of a loan forbearance negotiation does not constitute a breach of loyalty under California law. Because Plaintiff's conclusory allegations are insufficient to defeat summary judgment, and the evidence is insufficient to support a finding that Defendant breached the duty of loyalty, Plaintiff's duty of loyalty theory fails as a matter of law.
A partner's duty of care "is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law." Cal. Corp. Code § 16404(c). Plaintiff insists that Defendant breached his duty of care by failing to "use diligent efforts to recruit executives and solicit investments in FairWay operating companies." (Dkt. No. 119-1 at ¶ 19.) Defendant argues that summary judgment is warranted because Plaintiff fails to put forth any evidence that Defendant engaged in proscribed conduct giving rise to a breach of the duty of care. The Court agrees. Defendant has met his initial burden of showing that Plaintiff "does not have enough evidence of an essential element [of his breach of fiduciary claim] to carry [his] ultimate burden of persuasion at trial," and Plaintiff has failed to produce "evidence to create a genuine issue of material fact" on that score. See Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1103, 1106 (9th Cir. 2000).
Plaintiff argues that Defendant breached his fiduciary duty of care by failing to diligently recruit executives and solicit investments for FairWay. (Dkt. No. 119-1 at ¶ 19.) Even taking Plaintiff's allegation as true, Plaintiff cites no authority indicating that a lack of "diligence" rises to the level of "grossly negligent or reckless conduct,
Plaintiff's opposition
Plaintiff testified that the list indicates that Defendant made "a decent effort" during the "first nine months of the partnership," but after that, Defendant's "diligent efforts went down to less than one per month and then they fell down to four per year and then they fell down to two per year." (Dkt. No. 103-2, Ex. A at 30.) Plaintiff further testified, "I do not consider that diligent, and that is a breach." (Id.) However, "to avoid summary judgment, a non-movant must show a genuine issue of material fact by presenting affirmative evidence from which a jury could find in his favor." FTC v. Stefanchik, 559 F.3d 924, 929 (9th Cir. 2009) (noting that "[a] non-movant's bald assertions or a mere scintilla of evidence in his favor are both insufficient to withstand summary judgment.") Here, there is nothing in Plaintiff's testimony nor the face of exhibit S from which a reasonable trier-of-fact could find that Defendant was grossly negligent or reckless, or engaged in intentional misconduct "or a knowing violation of the law." See Cal. Corp. Code § 16404.
Plaintiff's opposition cites no other evidence
Drawing all reasonable inferences from the record in Plaintiff's favor, no reasonable trier of fact could find that Defendant engaged in "grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law"; thus, summary judgment is warranted.
As no reasonable trier of fact could find that Defendant breached the duties of loyalty or due care, the Court grants Defendant's motion for summary judgment on Plaintiff's claim for breach of fiduciary duty. The Court need not address Defendant's arguments regarding lack of evidence of damages, although the Court agrees that Plaintiff's claim is also deficient in that regard.
Plaintiff's complaint seeks declaratory relief regarding "the parties' rights, duties and obligations to each other" stemming from the alleged partnership and the December 2011 MOU. (Dkt. No. 1-1 at ¶ 29.) Defendant insists that summary judgment is warranted on this claim as to the alleged partnership because Defendant owed no fiduciary duties to Plaintiff. As to the MOU, Defendant's counterclaim insists that he is entitled to "declaratory relief rescinding" the MOU "for failure of consideration." (See Dkt. Nos. 99 at 14; 103 at 30.)
"The Declaratory Judgment Act does not grant litigants an absolute right to a legal determination." United States v. State of Washington, 759 F.2d 1353, 1356 (9th Cir. 1985). A court's decision whether to grant declaratory relief is instead "a matter of discretion," and "the court may, after a full consideration on the merits, exercise its discretion to refuse to grant declaratory relief because the state of the record is inadequate to support the extent of the relief sought." Id. "Declaratory relief should be denied when it will neither serve a useful purpose in clarifying and settling the legal relations in issue nor terminate the proceedings and afford relief
Here, although there is a genuine dispute of fact regarding the existence of a partnership, that dispute is not material to Plaintiff's breach of fiduciary claim in the absence of evidence in support of such a breach. Thus, affording Plaintiff declaratory relief will serve no useful purpose in settling the claims at issue, nor will it "terminate the proceedings." See State of Washington, 759 F.2d at 1357 ("Precise resolution, not general admonition, is the function of declaratory relief."). Similarly, Plaintiff's request for declaratory relief regarding the MOU serves no useful purpose and will not terminate the proceedings regarding Plaintiff's claim for breach of fiduciary duty. Accordingly, the Court grants Defendant's motion for summary judgment on Plaintiff's cause of action for declaratory relief.
Plaintiff's cause of action for an accounting alleges that "there was a contractual relationship between the [p]arties and a balance is due and owing between them in an amount which is disputed and which cannot be ascertained without an accounting." (Dkt. No. 1-1 at ¶ 31.) Defendant provides no substantive argument regarding this claim, but instead insists that summary judgment "results from [his motion] and the companion [motion for summary judgment on Defendant's counterclaims], because [Defendant's] motions resolve any issues of the amounts due and owing between the parties." (Dkt. No. 103 at 30) (citing St. James Church of Christ Holiness v. Superior Court, 135 Cal.App.2d 352, 359, 287 P.2d 387 (Cal. Ct. App. 1955) (no accounting necessary where the amount is for a sum certain or "where it appears from the complaint that none is necessary or that there is an adequate remedy at law."). Plaintiff offers no opposition to summary judgment regarding this claim, and even if he did, such opposition would be futile because his claim for an accounting is derivative of his breach of fiduciary duty claim. See Janis v. California State Lottery Comm'n, 68 Cal.App.4th 824, 833-34, 80 Cal.Rptr.2d 549, (Cal. Ct. App. 1998) (holding that cause of action for an accounting must fail where underlying claims fail because "[a] right to an accounting is derivative; it must be based on other claims.").
Accordingly, the Court grants Defendant's motion for summary judgment on Plaintiff's claim for an accounting because it is derivative of his breach of fiduciary claim.
The burdens faced by opposing parties on cross motions for summary judgment "vary with the burden of proof they will face at trial." First Pac. Networks, Inc. v. Atl. Mut. Ins. Co., 891 F.Supp. 510, 513 (N.D. Cal. 1995). "When the party moving for summary judgment would bear the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial." C.A.R. Transp. Brokerage Co., Inc. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (internal quotation marks and citation omitted). In that case, the moving party "has the initial burden of establishing the absence of a genuine issue of fact on each issue material to its case." Id. If the party produces sufficient evidence on that score, "the burden then moves to the opposing party, who must present significant probative evidence tending to support its claim or defense." Id. (internal quotation marks and citation omitted). If the opposing party "fails to produce enough
Defendant moves for summary judgment on his counterclaims for: (1) breach of promissory notes and loan agreements; and (2) declaratory relief (rescission).
Plaintiff likewise moves for summary judgment on Defendant's counterclaims, arguing that: (1) the notes at issue are usurious; and (2) Defendant failed to register as a licensed finance lender as required under the California Financial Code, § 22000 et seq. The Court addresses Defendant's counterclaims in turn.
To establish a breach of contract under California law, a claimant must show: "(1) the contract, (2) the [claimant's] performance or excuse for nonperformance, (3) [the opposing party's] breach, and (4) the resulting damages to [the claimant]." Rutherford Holdings, LLC v. Plaza Del Rey, 223 Cal.App.4th 221, 228, 166 Cal.Rptr.3d 864 (Cal. Ct. App. 2014). Similarly, under Delaware law, the elements of a breach contract claim are: (1) "the existence of a contract"; (2) "the breach of an obligation imposed by that contract; and" (3) resulting damages to the claimant. Avaya Inc., RP v. Telecom Labs, Inc., 838 F.3d 354, 389 (3d Cir. 2016) (internal quotation marks and citation omitted).
The record shows that the parties entered into 33 loan agreements between 2006 and 2011 reflected in promissory notes that were payable by Plaintiff upon Defendant's demand. Plaintiff does not dispute the existence or facial validity of the notes at issue; indeed, Plaintiff includes them (and several other promissory notes between the parties) as exhibits to his cross motion for summary judgment. (See Dkt. No. 101-4, Ex. A at 2-177.) Further, the Loan Managers clearly reflect Plaintiff's express recognition that he is individually liable for payment of the notes on demand. Plaintiff's February 29, 2016 email to Defendant includes a Loan Manager with a summary entitled "Personal Loans — Forman to Avery" that lists "Accumulated Loans with interest" dating from August 2006 to October 2011. (Dkt. No. 99-4, Ex. 53 at 114.) The list includes the 33 notes at issue. The summary states, in pertinent part:
(Id.) It is undisputed that Plaintiff failed to comply with Defendant's demand for payment in May 2017. Finally, Plaintiff's breach resulted in damages to Defendant reflected in the unpaid amounts owed under the notes.
Based on the record before the Court, Defendant has satisfied his burden of demonstrating the absence of a genuine dispute of material fact on the essential elements of his breach of contract claim. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); see also Atl. Mut. Ins. Co., 891 F.Supp. at 513 ("`Where the moving party has the burden of [proof at trial,] his showing must be sufficient for the court to hold that no reasonable trier of fact could find other than for the moving party.'") (quoting Schwarzer, Summary Judgment Under the Federal Rules: Defining Genuine Issues of Material Fact, 99 F.R.D. 465, 487-88 (1984)). Thus, the burden shifts to Plaintiff to "present significant probative evidence tending to support its claim or defense." See Darden Rests., Inc., 213 F.3d at 480. As discussed below, Plaintiff has not met that burden.
Plaintiff argues that Defendant's breach of contract claim is barred by the applicable statute of limitations because "[t]he statute of limitations on Demand Notes begins to run when Demand Notes are signed, not upon their demand." (Dkt. No. 118 at 12.) Plaintiff cites no authority for this argument; however, he is correct that the statute of limitations begins to run upon execution of a demand note. There is a four-year statute of limitations under California law for breach of contract claims, see Cal. Civ. Proc. Code § 337, and "loans payable on demand are deemed payable at their inception, and the statute begins to run from such time," Buffington v. Ohmert, 253 Cal.App.2d 254, 256, 61 Cal.Rptr. 360 (Cal. Ct. App. 1967). Under Delaware law, the statute of limitations is six years. 10 Del. C. § 8109 ("When a cause of action arises from a promissory note, bill of exchange, or an acknowledgement under the hand of the party of a subsisting demand, the action may be commenced at any time within 6 years from the accruing of such cause of action.").
Defendant first filed his counterclaim for breach of contract on May 17, 2017. (Dkt. No. 29.) Thus, based solely on the date of the notes at issue, which were executed between 2006 and 2011, and the date of Defendant's first counterclaim, the statutes of limitations under California and Delaware law appear to bar his claim. However, the Loan Managers effectively restarted the statute of limitations under both California and Delaware law. See e.g., Cal. Civ. Proc. Code § 360 ("No acknowledgement or promise is sufficient evidence of a new or continuing contract, by which to take the case out of the operation of [the statute of limitations],
In his cover email for the December 2007 Loan Manager, Plaintiff notes that the Loan Managers were "valid & binding — signed under the Electronic Signature Act." (See Dkt. No. 99-3, Ex. 38 at 56; see also id., Ex. 39 at 61 ("[T]hese electronic docs are completely binding [signed under the Electronic Signatures Act].").) As previously discussed, beginning with the March 2008 Loan Manager, Plaintiff includes the following:
(Dkt. No. 99-3, Ex. 40 at 67.) Plaintiff then sent Defendant updated Loan Managers in April 2008, May 2008, August 2008, September 2008, October 2009, April 2010, February 2011, and October 2011. Each of the Loan Managers included Plaintiff's electronic signature and his acknowledgement of his obligation to pay the notes on Defendant's demand. The Loan Managers also included all of the notes at issue that are governed by California law. Such written acknowledgement is sufficient to renew the statute of limitations. See Western Coal & Mining Co. v. Jones, 27 Cal.2d 819, 823, 167 P.2d 719 (1946) (noting that "[t]he distinct and unqualified admission of an existing debt contained in a writing signed by the party to be charged, and without intimation of an intent to refuse payment thereof, suffices to establish the debt to which the contract relates as a continuing contract, and to interrupt the running of the statute of limitations against same") (internal quotation marks and citations omitted).
The December 2011 Loan Manager adds an additional line to the above, stating:
(Dkt. No. 99-4, Ex. 51 at 53.) The parties executed the FairWay Pricing Technologies note in April 2006, and it is governed by Delaware law, which provides for a six-year statute of limitations.
Plaintiff next sent Defendant Loan Managers in March 2015 and February 2016 that likewise reference all 33 of the notes at issue. (See Dkt. No. 99-4, Ex. 52 at 111, Ex. 53 at 114.) Thus, the Loan Managers indicate that Plaintiff renewed the applicable statutes of limitations prior to their expiration, and Defendant's breach of contract claim—first filed in May 2017—falls within the limitations period.
Plaintiff insists that "the intent underlying the Loan Managers was not to serve as an acknowledgement of the debt but rather in compliance with his obligation as a partner to provide information about the partnership." (Dkt. No. 118 at 12-13.) Plaintiff characterizes the question regarding his "intent" in drafting the Loan Managers as a "factual dispute" sufficient to defeat summary judgment. (See id.) Plaintiff is wrong.
To give rise to a genuine dispute of material fact, Plaintiff must provide evidence —not unsupported assertions. See Liberty Lobby, Inc., 477 U.S. at 250, 106 S.Ct. 2505 ("[W]hen a properly supported motion for summary judgment is made, the adverse party `must set forth specific facts showing that there is a genuine issue for trial.'") (quoting Fed. R. Civ. P. 56(e)); see also Galen v. Cty. of Los Angeles, 477 F.3d 652, 658 (9th Cir. 2007) ("Bald assertions that genuine issues of material fact exist are insufficient."). Here, not only does Plaintiff fail to provide any evidence in support of his "intent" argument, that argument is directly contradicted by the record. The Loan Managers show that Plaintiff contemporaneously characterized the notes at issue as "Personal Loans — Forman to Avery" and represented that he was individually responsible for payment of the notes upon Defendant's demand. The only reasonable inference to be drawn from the Loan Managers is that they acknowledged Plaintiff's debt to Defendant.
At oral argument Plaintiff insisted that the Loan Managers did not acknowledge Plaintiff's debt because the December 2011 MOU relinquished Plaintiff's obligation to pay the notes, or at least required Defendant to first seek payment from Urso before making demand upon Plaintiff. Putting aside that this argument is not really about the statute of limitations, it nonetheless fails because the MOU cannot reasonably be read to support Plaintiff's interpretation. And Plaintiff points to no other evidence in the record to support his argument: no testimony as to conversations with Defendant, no emails or other correspondence, and no other documentary evidence that even hints that Defendant had agreed to give up his right to repayment from Plaintiff. Instead, the record includes Loan Managers issued by Plaintiff subsequent to the MOU that expressly acknowledge his debt and make no mention of the debt being relinquished. Simply put, no reasonable trier of fact could find the facts as urged by Plaintiff in this respect.
Plaintiff further argues that summary judgment is inappropriate because there is "a factual dispute over the [existence] of the partnership that is intertwined with any status of the Demand Notes of 2006-2011." (Dkt. No. 118 at 18.) Again, however, Plaintiff points to no evidence in support of that assertion, and his argument is belied by the terms of the notes themselves —none of which mention a partnership —and the Loan Managers, which clearly show that Plaintiff understood that the notes at issue were personal loans
The December 2011 MOU from Plaintiff to Defendant detailing a restructured "payout plan to [Defendant] that would retire the series of Promissory Notes dated from 2006-2011" likewise does not contain any reference to the purported partnership. (See Dkt. No. 99-4, Ex. 55 at 165.) Further, to the extent that the Court recognizes a genuine dispute of fact as to the existence of a partnership, that dispute is not material to the breach of contract counterclaim based on the record before the Court. See Liberty Lobby, Inc., 477 U.S. at 248, 106 S.Ct. 2505 ("Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.").
Plaintiff moves for summary judgment and opposes Defendant's motion on the grounds that the notes at issue are void because Defendant failed to register as a financial lender as required under the California Financing Law ("CFL"), California Financial Code § 22000 et seq. Plaintiff contends that by failing to register, Defendant violated California Financial Code §§ 22750 and 22752(a) and thus Defendant is prohibited from collecting on the loans, or at least collecting any interest on the loans. Defendant counters that this argument fails because the notes at issue are "commercial loans," and Sections 22750 and 22752(a) of the CFL apply only to "consumer loans." He further argues that Plaintiff has not shown that the CFL otherwise applies to all of the loans at issue.
The CFL provides that consumer loans "are subject to," among other chapters, "Article 2 (commencing with Section 22750) of Chapter 4." Cal. Fin. Code § 22001(b). Indeed, the title of Article 2 of Chapter 4, where Section 22750 and 22752 are found, is "Consumer Loan Penalties." Commercial loans, in contrast, are not covered by Article 2 of Chapter 4. See Cal. Fin. Code § 22001(c) ("Commercial loans, as defined in Section 22502, are subject to this chapter, Chapter 3 (commencing with Section 22500), Article 1 (commencing with Section 22700) of Chapter 4, and Article 3 (commencing with Section 22780) of Chapter 4."). Courts in this circuit have noticed this distinction in holding that Section 22750 does not apply to commercial loans. See Central Valley Ranch, LLC v. World Wide Invs., LLC II, No. 1:10-cv-00020 LJO DLB, 2012 WL 217685, at *5 (E.D. Cal. Jan. 24, 2012) (rejecting similar argument as "without merit" and noting that Section 22750 "relate[s] to consumer loans, not commercial loans such as those at issue
As defined by the CFL, a "consumer loan" is a loan "intended by the borrower for use primarily for personal, family, or household purposes." Cal. Fin. Code § 22203. Conversely, a "`[c]ommercial loan' means a loan of a principal amount of five thousand dollars ($ 5,000) or more... the proceeds of which are intended by the borrower for use primarily for other than personal, family, or household purposes." Cal. Fin. Code § 22502. Here, the notes at issue on Defendant's motion for summary judgment all have a principal amount of $ 5,000 or more. (See Dkt. No. 99-2, Exs. 1-33.) Thus, to defeat Defendant's motion, Plaintiff—who has the ultimate burden of proof on the CFL affirmative defense—must identify evidence sufficient to support a genuine dispute that the loans were not intended to be used primarily for other than personal, family or household purposes, that is, a finding that the loans were intended primarily for personal, family or household purposes.
Plaintiff's complaint alleges that the loans were commercial in nature: "Defendant, as part of his agreed upon support for the partnership/joint venture, provided funding for the partnership/joint venture which funds were characterized as Promissory Notes." (Dkt. No. 1-1 at ¶ 9.) This allegation is consistent with the terms of the first two promissory notes which themselves recite that the primary, or even exclusive, purpose of the loans was to fund FairWay. (See Dkt. No. 99-2, Ex. 1 at 12 ("Proceeds of Note (a) Use the proceeds of the Note for working capital, legal fees, and other [short-term] general corporate purposes."); Ex. 2 at 28 ("Proceeds of Note (a) Use the proceeds of the Note exclusively for patent-related expenses (e.g., legal fees and the related general costs) related to a contemplated international business."). The parties subsequently used a "Secured Promissory Note" form for the loans at issue on Defendant's motion (except the loan to FairWay International Kft) that does not specify what the proceeds of the loans could be used for. (See Dkt. No. 99-2, Exs. 3-24; 26-33.) However, based on the parties' past conduct, which shows that Defendant made the loans to further a commercial purpose—the development of FairWay—that omission does not give rise to a reasonable inference that the loans at issue were consumer loans. (See Dkt. No. 99-2, Exs. 3-24; 26-33.)
Plaintiff's cross motion for summary judgment and his opposition to Defendant's motion fail to identify any evidence upon which a reasonable trier of fact could find that Plaintiff intended to use the loans "primarily for personal, family, or household purposes." See Cal. Fin. Code § 22203. (See generally Dkt. Nos. 101-13 & 118.) Instead, Plaintiff's briefs ignored the consumer/commercial distinction. (Dkt. Nos. 101-13 at 7-8; 118 at 23-25.) Plaintiff's reply in support of his motion for summary judgment argues—for the first time—that the notes are not commercial loans but are instead consumer loans "because proceeds from each and every Demand Note were used for personal, family, or household purposes." (Dkt. No. 120 at 8.) Plaintiff's declaration in support of his reply, (Dkt. No. 120-1), contains a similar assertion.
At oral argument Plaintiff referred to deposition testimony from Defendant in which Defendant acknowledged that some of the loans' proceeds were used by Plaintiff for his living expenses. Specifically, with regard to Defendant's percentage of "equity participation" in FairWay companies, Defendant testified:
(See Dkt. No. 115-5 at 91 (211:16-212:2).) Plaintiff did not cite to this testimony in any of his pleadings in connection with the summary judgment motions; thus, the Court need not consider it. See Fed. R. Civ. P. 56(c)(3). However, because Plaintiff is unrepresented, and he seeks to have the testimony considered in defense to Defendant's counterclaims rather than on his affirmative claims, the Court will consider the late-identified deposition testimony. See id.; see also Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1031 (9th Cir. 2001) (noting that the trial court has discretion on summary judgment to consider materials in the record even if not cited to in the papers). Defendant, however, must be given an opportunity to respond, especially since Plaintiff did not claim that the loans qualify as consumer loans until his reply brief. Accordingly, Defendant may file a supplemental brief, not to exceed five pages, on whether, drawing all inferences in Plaintiff's favor, a reasonable trier of fact could find any of the loans at issue on Defendant's motion for summary judgment were made primarily for personal, family, or household purposes. The Court will take the issue under submission upon the filing of Defendant's supplemental brief. No further briefing or evidence is permitted.
Defendant also insists that Plaintiff's CFL defense fails because Plaintiff was never a resident of California. Defendant's sole legal authority, however, is a decision of the Commissioner of the California Department of Corporations that states on its face that the decision "is applicable to the specific factual decision identified in the request for ruling, and may not be relied upon in connection with any other factual situation." California Department of Corporations, Howard, Rice, Nemerovski, Canady, Falk & Rabkin, 1997 WL 157375 (April 2, 1997) (emphasis added). Thus, Defendant has not shown that the CFL does not apply to the loans due to Plaintiff's residency. Further, there is a genuine dispute as to whether
Plaintiff's motion for summary judgment on his CFL affirmative defense is DENIED. Drawing all inferences in Defendant's favor, Plaintiff has not shown that every reasonable trier of fact would have to find that Plaintiff intended the loans to be used primarily for personal, family, or household purposes.
While Defendant's breach of contract counterclaim includes loans for less than $ 5000, Plaintiff has also not established that if the $ 5000 threshold for a commercial loan is not met that means the loan is considered a consumer loan for purposes of the CFL penalty provisions even if the loan is not made primarily for personal, family, or household purposes. See Cal. Fin. Code § 22502. Accordingly, the Court denies Plaintiff's motion for summary judgment on his CFL affirmative defense as to the loans for less than $ 5000.
Plaintiff's cross motion for summary judgment on Defendant's counterclaims asserts a usury defense, arguing that Defendant is barred under California law from collecting interest on the notes at issue.
Under California law, "[n]o person, association, copartnership or corporation shall by charging any fee bonus, commission, discount or other compensation receive from a borrower more than the interest authorized by this section upon any loan or forbearance of any money, goods or things in action.". Cal. Const. Article XV, § 1(2). The interest rate on the type of loans at issue may not exceed 10% per year. Id. "The essential elements of usury are: (1) The transaction must be a loan or forbearance; (2) the interest paid must exceed the statutory maximum; (3) the loan and interest must be absolutely repayable by the borrower; and (4) the lender must have a willful intent to enter into a usurious transaction." Ghirardo v. Antonioli, 8 Cal.4th 791, 798, 35 Cal.Rptr.2d 418, 883 P.2d 960 (1994). "A transaction is rebuttably presumed not to be usurious," and "[t]he borrower bears the burden of proving the essential elements of a usurious transaction." Id. at 798-99, 35 Cal.Rptr.2d 418, 883 P.2d 960.
Defendant counters that that Plaintiff's usury defense fails because: (1) Plaintiff "has presented no evidence that the interest paid on the loans exceeds the statutory maximum or that Avery's offers to Forman had any demonstrable value"; (2) Plaintiff "has presented no evidence that his offers to Forman were made with the intent of the parties to evade the usury laws"; and (3) the "defense is barred by the doctrines of estoppel, in pari delicto, unclean hands, laches and/or waiver. (Dkt. No. 117 at 10, 17.) The Court finds Defendant's first and second arguments dispositive and agrees that the record is insufficient to grant summary judgment in Plaintiff's favor on his usury defense because Plaintiff fails to (1) provide sufficient evidence that the equity rights had demonstrable value at the time the loans were made and (2) demonstrate the requisite intent. For the same reasons, Plaintiff's evidence is insufficient to raise a genuine dispute of material fact as to whether the equity rights constituted impermissible compensation for the loans in addition to the 10% interest rate.
Under California law additional compensation received by the lender must be considered as interest in determining whether a loan is usurious. See Bayne v. Jolley, 227 Cal.App.2d 630, 633, 38 Cal.Rptr. 873 (Cal. Ct. App. 1964) ("The extraction of an additional payment in the form of a commission from which the lender will benefit, either directly or indirectly, is in effect a charge of an additional interest and will render usurious a loan made at the maximum interest rate [of 10%]."). However, any such "bonus" must have demonstrable value at the time of the loan. Sandell v. Bailey, 212 Cal.App.2d 920, 934, 28 Cal.Rptr. 413 (Cal. Ct. App. 1963).
Plaintiff asserts that Defendant's deposition testimony supports Plaintiff's assertion that the equity rights were related to the loans and acted as additional compensation. Defendant's testimony references a conversation wherein the parties discussed "how much equity [Defendant] was receiving by virtue of sustaining loans to [Plaintiff]." (Dkt. No. 101-6, Ex. C at 3.)
(Id. at 3:7-23 (emphasis added).) Defendant testified that at one time "the only equity [he] owned was in a single [FairWay] operating company," and he "grew increasingly concerned about having all my eggs in one basket." (Id. at 4:1-4.) Further:
(Id. at 4:11-14.) The February 2011 letter sent by Plaintiff to Defendant, which Plaintiff characterizes as an "Equity Override Agreement," states, in pertinent part:
(Dkt. 101-7, Ex. D at 2.) The June 2011 "Equity Override Agreement" increased the offer to 2%. (Id. at 4.) In response to questioning regarding the February 2011 letter, Defendant testified: "I don't know that I formally agreed [to its terms]." (Dkt. No. 101-6, Ex. C at 6:23.) Defendant continued, however:
(Dkt. No. 116-5, Ex. O at 92 (emphasis added).)
Further, Defendant testified:
(Dkt. No. 101-6, Ex. C at 7:11-17 (emphasis added).) Defendant also testified:
(Dkt. No. 116-5, Ex. O at 93 (emphasis added).) Further, the January 2016 draft
In opposition to Plaintiff's cross motion for summary judgment and his usury defense, Defendant submits the September 2006 letter as evidence that the equity rights were valueless. (See Dkt. No. 117-3, Ex. B at 2-3.) Defendant asserts that the September 2006 letter "merely offers [Defendant] the right to purchase, for a small price, a percentage of shares in non-existent FairWay entities that might never be formed." (Dkt. No. 117 at 12.) Defendant also submits the declaration of Greg Regan, "an experienced valuation expert," who reviewed "the materials [Plaintiff] submitted to the Court" and "concluded that [Plaintiff] has not provided any information upon which one could determine the value of rights offered to [Defendant] in the September 10, 2006 letter." (See Dkt. No. 117-6 at ¶¶ 2, 6.) Further, Mr. Regan opines: "The information cited by [Plaintiff] does not provide a basis under acceptable and widely-used valuation methods to determine the value of the rights offered in the February 4, 2011 and June 5, 2011 letters, as of those dates (or any dates)." (Id. at ¶ 8.)
Plaintiff offers no evidence to rebut Mr. Regan's declaration, and instead merely argues that Mr. Regan's declaration and methodology is faulty. (See Dkt. No. 120 at 12-13.) Such assertions do not give rise to a genuine dispute of material fact; Plaintiff must instead identify evidence to rebut Defendant's evidence. See Galen, 477 F.3d at 658 ("Bald assertions that genuine issues of material fact exist are insufficient."). Plaintiff further argues that the equity rights had value because Defendant perceived value in them and "had complete knowledge of the opportunity and equity value" as a "full partner" in FairWay. (See Dkt. No. 120 at 13-14.) Defendant's perceived value is not enough, however, given that any additional bonus or compensation for the loans must have demonstrable value at the time the loans are made. See Bailey, 212 Cal.App.2d 920, 935, 28 Cal.Rptr. 413 (noting that for usury purposes, "[t]he value of the stock after the date the option was given is immaterial even though it may later become valuable," and "[t]he lender is charged with the value of property at the time he receives it regardless of what is later received from the sale of it."). Thus, to raise a genuine dispute of material fact, Plaintiff must identify evidence that would support a reasonable inference that the equity rights had some value at the time of the loans. Plaintiff fails to do so.
In the absence of any evidence that the equity rights had demonstrable value at the time of the loans, Plaintiff's motion for summary judgment fails because he has not proved the second element of usury— that the interest on the loans in question exceeded the statutory maximum. See Darden Rests., Inc., 213 F.3d at 480 ("When the party moving for summary judgment would bear the burden of proof at trial, it must come forward with evidence which would entitled it to a directed verdict if the evidence went uncontroverted at trial.") (internal quotation marks and citation omitted). Plaintiff's lack of evidence means his usury affirmative defense
The Court denies Plaintiff's cross motion for summary judgment on Defendant's counterclaims because Plaintiff fails to establish as a matter of undisputed fact that the loans were usurious or barred by the CFL. The Court defers ruling on Defendant's motion for summary judgment on his breach of contract counterclaim pending his submission of a supplemental brief regarding the loans not qualifying as consumer loans as a matter of law.
Defendant's motion also seeks declaratory relief; specifically, rescission of the December 2011 MOU for failure of consideration. Defendant argues that rescission is warranted because Plaintiff's promised consideration has failed in two ways: (1) Plaintiff failed to repay Defendant's loans by the end of 2012; and (2) Plaintiff no longer holds a 100% ownership interest in Urso, which he pledged in the MOU as the "main collateral" for the notes at issue. (Dkt. No. 99 at 23-25.) Defendant further insists that rescission is necessary to restore his security interest in the FairWay IP because Plaintiff is otherwise "judgment proof" and cannot satisfy any monetary award ordered by this Court.
Defendant's declaratory relief claim is in effect a claim that Plaintiff breached the MOU. Thus, to prevail, Defendant must establish that drawing all reasonable inferences in Plaintiff's favor, every reasonable factfinder would have to find that Plaintiff breached the MOU. Then, based on that breach, Defendant seeks a declaration that the MOU is rescinded and thus his loans are again secured directly by the Fairway IP. As previously noted, a court's decision whether to grant declaratory relief is "a matter of discretion," and "the court may, after a full consideration on the merits, exercise its discretion to refuse to grant declaratory relief because the state of the record is inadequate to support the extent of the relief sought." State of Washington, 759 F.2d at 1356.
The Court is not comfortable ordering the relief sought based on the record before it for two reasons. First, Defendant's motion relies heavily on Plaintiff's failure answer the declaratory relief counterclaim. (Dkt. No. 99 at 23.) However, Plaintiff did answer the counterclaim, just not in a timely manner. (See Dkt. No. 112.) Defendant offers no legal authority for the proposition that an untimely answer, filed before the defendant is held in default, admits the well-pleaded allegations of the complaint. Second, Defendant has not addressed why Urso—the purported 100% owner of the Fairway IP—does not need to be made a party to these proceedings if what Defendant seeks is a declaration that Defendant has a priority lien to the Fairway IP—an asset held by Urso.
The Court in its discretion therefore denies Defendant's motion for summary judgment on its declaratory judgment claim without prejudice to renewal.
Defendant insists that injunctive relief is necessary to ensure Plaintiff's satisfaction of any monetary judgment against him. At the outset, however, strictly monetary harm "will not usually support injunctive relief." Am. Trucking Ass'n, Inc. v. City of Los Angeles, 559 F.3d 1046, 1057 (9th Cir. 2009); see also Rent-A-Center, Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir.
Defendant moves for sanctions against Plaintiff pursuant to Federal Rules of Civil Procedure 37(b) and 41(b) because: (1) Plaintiff "violated the Court's May 17 and June 6 Orders by failing to complete his document production by June 21"; (2) Plaintiff "violated the Court's July 18 Order concerning production of assertedly privileged documents"; (3) Plaintiff "walked out of his Court-ordered deposition before questioning was completed"; (4) Plaintiff "has ignored the Court's August 6 Order to pay monetary sanctions to [Defendant]"; and (5) Plaintiff "improperly interfered with document production and testimony from Timothy Covington." (Dkt. No. 111 at 2.) Defendant requests that the Court grant his motion and dismiss Plaintiff's complaint with prejudice, "impose a sanction prohibiting [Plaintiff] from opposing [Defendant's] second counterclaim [seeking rescission of the December 2011 MOU]." (Id. at 22.) Plaintiff has not opposed or otherwise responded to Defendant's motion.
The Court has granted Defendant's motion for summary judgment on Plaintiff's complaint; thus, terminating sanctions are not necessary. It is always preferable to decide a case on its merits. While Defendant also seeks an order that Plaintiff cannot oppose Defendant's claim for declaratory relief, most of the misconduct is not tethered to that counterclaim, which was not even added to this lawsuit until July 2018. Defendant does contend that Plaintiff testified at his deposition in July 2018 that he is withholding documents created after October 2016, including documents relevant to the ownership of Urso. Defendant, however, never moved to compel such testimony or documents. He cites no legal authority that would allow what is in effect a default judgment for failing to produce evidence absent a court order.
On August 6, 2018, the Court did order Plaintiff to pay $ 3360 in sanctions for discovery violations as of May 2018. (Dkt. No. 86.) According to Defendant, Plaintiff has yet to pay those sanctions despite four separate inquiries from Defendant's counsel. (Dkt. No. 111 at 14.) Plaintiff shall pay the monetary sanction, as previously ordered, on or before February 21, 2019 and shall file a written submission with the Court by the same date confirming that he has complied with the Court's order and paid the sanction.
On October 15, 2018, after submitting his motion for summary judgment on Defendant's counterclaims, Plaintiff filed an answer to Defendant's second amended counterclaim asserting 16 affirmative defenses.
On January 7, 2019, Plaintiff purportedly moved under Federal Rule of Civil Procedure 36 to "allow motion for leave to amend filing of amended affirmative defenses by Plaintiff." (Dkt. No. 134.) Specifically, Plaintiff states that he "move[s] under Rules [sic] 36, to amend its responses to the Defendant's Motion for Summary Judgment to Defendant's Counterclaims filed October 4, 2018." (Id. at 2.) Plaintiff asserts that "[t]he Motion is ready to file," and "[t]he Court has only to allow." (Id.) Plaintiff clarified at oral argument that he is seeking leave to amend based on "additional claims" brought by Defendant in his motion for summary judgment on his counterclaims. Notwithstanding that Plaintiff's motion fails to
Accordingly, the Court denies Plaintiff's motion for leave to amend.
The Court grants summary judgment in favor of Defendant on Plaintiff's claims for breach of fiduciary duty, declaratory relief, and an accounting, that is, on Plaintiff's entire complaint.
The Court denies Plaintiff's motion for summary judgment on Defendant's counterclaims and denies without prejudice Defendant's motion for summary judgment on his declaratory judgment claim.
The Court defers ruling on Defendant's motion for partial summary judgment on his breach of contract counterclaim pending his submission of a supplemental brief regarding the loans not qualifying as consumer loans as a matter of law. Defendant's brief shall be submitted on or before February 21, 2019.
The Court refers the parties to a randomly assigned magistrate judge for a settlement conference to occur as soon as is convenient to the magistrate judge.
This Order disposes of Docket Nos. 101, 103, 111, and 134.
