Moofly Productions, LLC v. Sandra Favila et al

Filing 29

Order re: Counter-Claimants' Motion to Strike Answer Filed on Behalf of Counter-Defendant Get Flipped, Inc. 18 by Judge Ronald S.W. Lew. granting 18 Motion to Strike and document is stricken. the Court hereby GRANTS Counter-Claimants� 39; Motion to Strike Answer Filed on Behalf of Counterclaim Defendant Get Flipped, Inc. 18 . The Court hereby ORDERS that the Answer filed on behalf of Counter-Defendant GFI be stricken from the record. The Court also ORDERS that the Clerk shall enter default against Counter-Defendant GFI. SEE ORDER FOR COMPLETE DETAILS. (jre)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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11 Moofly Productions, LLC,
12

Plaintiff,
v.

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Sandra Favila, an
14 individual; Estate of
Richard C. Corrales; and
15 Does 1 through 10,
inclusive,
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Defendants.
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CV 13-5866 RSWL (PJWx)
Order re: CounterClaimants’ Motion to
Strike Answer Filed on
Behalf of CounterDefendant Get Flipped,
Inc. [18]

Before the Court is Defendants and Counter-

21 Claimants’ Sandra Favila (“Favila”), Estate of Richard
22 C. Corrales (“Corrales Estate”) (collectively
23 “Defendants”), and Motion Graphix, Inc.’s (“MGI”)
24 (collectively “Counter-Claimants”) Motion to Strike
25 Answer Filed on Behalf of Counter-Defendant Get
26 Flipped, Inc. [18].

Counter-Defendants Raleigh William

27 Souther (“Souther”), Helena Pasquarella
28 (“Pasquarella”), and Moofly Productions, LLC (“Moofly”)
1

1 (collectively, the “responding Counter-Defendants”)
2 filed an Opposition on October 29, 2013 [21].

This

3 matter was taken under submission on November 14, 2013
4 [28].

Having reviewed all papers submitted pertaining

5 to the Motion, and having considered all arguments
6 presented to the Court, the Court NOW FINDS AND RULES
7 AS FOLLOWS:
8

Counter-Claimants’ Motion to Strike is hereby

9 GRANTED.
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11

I.

Background

Plaintiff and Counter-Defendant Moofly is a

12 California LLC.

First Amended Compl. (“FAC”) ¶ 1.

13 Counter-Defendants Souther and Pasquarella are the
14 trustees and settlors of Counter-Defendant Kiss of
15 Light Trust (“KOL”).
16 (“FACC”) at ¶ 4-5.

First Amended Cross-Compl.
Counter-Defendant Get Flipped, Inc.

17 (“GFI”) is a California corporation.
18

Id. ¶ 7.

Plaintiff Moofly is in the business of selling

19 products and services related to lenticular images 20 three dimensional images.

FAC ¶ 10.

Moofly alleges

21 that on October 11, 2012 Defendants Favila and Corrales
22 Estate sent a letter to Ayala High School, Moofly’s
23 client, making false and unsubstantiated statements
24 that, inter alia, Moofly was infringing Defendants’
25 intellectual property and that those who transacted
26 with Moofly were liable to Defendants.

Id. at ¶ 11.

27 Moofly further alleges that Defendants have wrongfully
28 contacted Moofly’s clients, prospective clients, and
2

1 employees in an effort to divert profits and business
2 away from Moofly and to Defendants.
3

Id. at ¶ 13.

Based on this, Plaintiff Moofly brought the current

4 Action in California Superior Court against Defendants
5 for: (1) Intentional Interference with Prospective
6 Economic Advantage; (2) Intentional Interference with
7 Present Contractual Relations; (3) Unfair Competition
8 under Cal. Bus. & Prof. Code § 17200 et seq.; and (4)
9 Unfair Competition under Cal. Bus & Prof. Code § 17000
10 et seq.
11

Id. at ¶¶ 17-55.

Cross-Complainants, in turn, claim that Richard C.

12 Corrales (“Corrales”) was a Pulitzer Prize winning
13 photographer for the Los Angeles Times who invented
14 lenticular software, which merges two or more
15 photographs into one to allow viewers to see different
16 photographs depending on the angle of observation.
17 FACC ¶¶ 12-13.

Cross-Complainants allege that Souther

18 worked with Corrales at the Los Angeles Times as a
19 photo editor and that they founded MGI together,
20 Corrales as the 51% majority shareholder and Souther as
21 the 49% minority shareholder.

Id. at ¶ 14.

Between

22 August 10, 2001 and September 7, 2003, Corrales,
23 Souther, and MGI obtained various patents, copyrights,
24 and trademarks relating to lenticular software.
25 ¶¶ 15-20.

Id. at

MGI either obtained the rights directly or

26 was assigned the rights by Corrales.

Id.

From 2000 to

27 2007, MGI used these rights in its business.
28 21.
3

Id. at ¶

1

In January 2005, Corrales and Souther had

2 disagreements over their respective roles in the
3 company.

Id. at ¶ 22.

Counter-Claimants allege that

4 in June 2005, Souther began doing business exploiting
5 MGI’s copyrights and trademarks under the name “Get
6 Flipped,” even though MGI owned the trademark for “Get
7 Flipped.”

Id. at ¶ 23.

Souther also registered a

8 copyright for a website entitled “Get Flipped!.”
9 at ¶ 24.

Corrales died in 2005 and his sister, Favila,

10 was appointed the executrix of his estate.
11 25.

Id.

Id. at ¶

In February 2006, Souther decided to dissolve MGI

12 and to transfer its assets to his new company, Get
13 Flipped, Inc.

Id. at ¶ 26.

In March, 2006, Souther

14 and Pasquarella founded Get Flipped, Inc. and, later
15 that year, caused Get Flipped, Inc. to file
16 registrations for two trademarks already held by MGI:
17 “Flip Zone” and “Get Flipped.”

Id. at ¶¶ 29-31.

In

18 2006, Souther caused MGI to abandon its patent
19 applications with the USPTO.

Id. at ¶ 28.

In February

20 2007, Souther purported to have MGI sell all of its
21 assets, including MGI’s intellectual property, to Get
22 Flipped, Inc. for no consideration and without the
23 consent of its majority shareholder.

Id. at ¶ 32.

In

24 March 2007, Souther caused Get Flipped, Inc. to
25 register the assignment of MGI’s various copyrights and
26 trademarks in Get Flipped, Inc.’s name.

Id. at ¶ 33.

27 Souther then purported to dissolve MGI.

Id. at ¶ 34.

28

On October 30, 2007, the Corrales Estate brought a
4

1 lawsuit in California state court, case number
2 BC379462, against Souther and Get Flipped, Inc., which
3 resulted in a judgment for the Corrales Estate against
4 Souther and Get Flipped, Inc. (the “Souther/Corrales
5 Judgment”).

Id. at ¶¶ 37-38.

The Souther/Corrales

6 Judgment included, among other things, an award of all
7 software code, trademarks, copyrights, and patents
8 related to the software from Souther and Get Flipped,
9 Inc. to the Corrales Estate.

Id. at ¶ 40.

Counter-

10 Claimants further allege that to date, neither Souther
11 nor Get Flipped, Inc. has complied with any of the
12 judgment terms and Souther has explicitly stated his
13 intent to not cooperate with the terms of the judgment.
14 Id. at ¶¶ 42-44.

Instead, Souther and Pasquarella

15 established a new website and began doing business
16 under the name “3DCheeze” through their newly formed
17 entity, Plaintiff Moofly.

Id. at ¶¶ 45-50.

Counter-

18 Claimants allege that to date, Souther and Pasquarella
19 have continued to use MGI’s intellectual property even
20 though those properties belong to the Corrales Estate.
21 Id. at ¶¶ 51-52.
22

Based on this, Counter-Claimants filed a Counter-

23 Complaint against Counter-Defendants in California
24 State Court for: (1) Fraudulent Transfer; (2)
25 Conversion; (3) Federal Copyright Infringement; (4)
26 Federal Trademark Infringement; (5) Unfair Competition
27 under the Lanham Act, Cal. Bus. & Prof. Code § 17200 et
28 seq. and the common law; (6) Fraudulent Transfer; (7)
5

1 Unjust Enrichment; and (8) for Preliminary and
2 Permanent Injunctions.

Id. at ¶¶ 56-111.

Counter-

3 Claimants then proceeded to remove this Action on
4 August 12, 2013 [1].
5
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II.

Legal Standard

Under Federal Rule of Civil Procedure 12(f), the

7 Court may, by motion or on its own initiative, strike
8 “an insufficient defense or any redundant, immaterial,
9 impertinent or scandalous” matters from the pleadings.
10 The purpose of Rule 12(f) is “to avoid the expenditure
11 of time and money that must arise from litigating
12 spurious issues by disposing of those issues prior to
13 trial.”

Whittlestone, Inc. v. Handi-Craft Co., 618

14 F.3d 970, 973 (9th Cir. 2010) (quoting Fantasy, Inc. v.
15 Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993)).
16

The grounds for a motion to strike must appear on

17 the face of the pleading under attack.

See SEC v.

18 Sands, 902 F. Supp. 1149, 1165 (C.D. Cal. 1995).

In

19 addition, the Court must view the pleading under attack
20 in the light more favorable to the pleader when ruling
21 upon a motion to strike.

In re 2TheMart.com, Inc. Sec.

22 Litig, 114 F. Supp. 2d 955, 965 (C.D. Cal. 2000)
23 (citing California v. United States , 512 F. Supp. 36,
24 39 (N.D. Cal. 1981)).

As a rule, motions to strike are

25 regarded with disfavor because striking is such a
26 drastic remedy; as a result, such motions are
27 infrequently granted.

Freeman v. ABC Legal Servs.,

28 Inc., 877 F. Supp. 2d 919, 923 (N.D. Cal. 2012).
6

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III.

Discussion

4 A.

Motion to Strike

5

Under Federal Rule of Civil Procedure 17(b)(2), the

6 “[c]apacity to sue or to be sued is determined” for
7 corporations “by the law under which [the corporation]
8 is organized.”

Fed. R. Civ. P. 17(b)(2).

Counter-

9 Defendant GFI is registered under California law - as a
10 result, California law applies.
11

FACC ¶ 7.

Under California Revenue & Tax Code § 23301 and

12 California Corporations Code § 2205, a suspended
13 corporation cannot prosecute or defend an action in
14 California court.

Crestmar Owners Ass’n v. Stapakis,

15 157 Cal. App. 4th 1223, 1230 (2007); Timberline, Inc.
16 v. Jaisignhani, 54 Cal. App. 4th 1361, 1365 (1997).

In

17 other words, a suspended California corporation may not
18 participate in any litigation activities.

Palm Valley

19 Homeowners Ass’n v. Design MTC, 85 Cal. App. 4th 553,
20 560-61 (2000).
21

Counter-Claimants and the responding Counter-

22 Defendants agree that Counter-Defendant GFI is
23 suspended.

See Mot. 3:11-12; Opp’n 3:5-6.

The

24 responding Counter-Defendants’ primary argument is that
25 because the Souther/Corrales Judgment imposed a
26 constructive trust on Counter-Defendant GFI’s assets,
27
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1 GFI’s ownership is currently ambiguous and in dispute.1
2 Opp’n 3:14-21.
3

Counter-Defendants are correct in that leniency is

4 routinely given in situations where the corporation’s
5 suspended status “only comes to light during
6 litigation.”

Timberline, 54 Cal. App. 4th at 1366.

In

7 such situations, the routine practice is to “permit a
8 short continuance to enable the suspended corporation
9 to effect reinstatement.”

Id.

This is so because

10 “[t]he suspension statutes are not intended to be
11 punitive;” rather, they are intended “to motivate
12 delinquent corporations to pay back taxes or file
13 missing statements.”

Cadle Co. v. World Wide

14 Hospitality Furniture, Inc., 144 Cal. App. 4th 504, 512
15 (2006) (citations omitted).

Thus, “[l]eniency permits

16 a delinquent corporation to secure a revivor, even at
17 the time of the hearing, at the request of the
18 corporation or on the trial court’s own motion.”

Id.

19 (citations omitted).
20

The Court finds, however, that even assuming that a

21 constructive trust was imposed on Defendant GFI’s
22 assets, such a constructive trust would not include
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Counter-Defendants allude to pleadings in state
court and correspondence between Counter-Claimants and
Counter-Defendants where Counter-Claimants allegedly
take differing positions on their ownership of CounterDefendant GFI. See Opp’n 3:14-21. The Court notes,
however, that Counter-Defendants fail to produce or
specify the allegedly inconsistent pleadings and
correspondences.
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1 ownership of the GFI entity.

No fair reading of the

2 Souther/Corrales Judgment would remotely suggest that
3 the constructive trust awarded the Corrales Estate
4 ownership of Counter-Defendant GFI - the
5 Souther/Corrales Judgment does not, for example,
6 despite an exhaustive listing of assets, specify any
7 ownership interest in Counter-Defendant GFI.

See Dkt.

8 #2, Ex. 1, p.2.
9

Furthermore, there is, of course, a critical and

10 crucial distinction between the property and assets (or
11 the “capital stock”) of a corporation and the shares of
12 a corporation.

The capital stock of a corporation

13 means “not the shares of which the nominal capital is
14 composed, but the actual capital–i.e., assets–with
15 which the corporation carries on its corporate
16 business.”

Schulte v. Boulevard Gardens Land Co., 164

17 Cal. 464, 468 (1913).

In contrast, the “shares” of a

18 corporation are “the units into which the proprietary
19 interests in a corporation are divided in the
20 articles.”

Cal. Corp. Code § 184.

In other words,

21 “shares are the interest that the shareholder has in
22 the corporation.”

9 Witkin, Summary 10th (2005)

23 Corporations, § 123, p. 898 (citing Kohl v. Lilienthal,
24 81 Cal. 378, 385 (1889)).

The difference between

25 owning the assets and owning the shares of a
26 corporation is a fundamental - and basic - legal
27 concept.
28

In other words, this is not a case like Design Data
9

1 Corp. v. Unigate Enter., where the court stayed the
2 case as to two suspended-corporation defendants.

Case

3 No. 12-cv-04131-WHO, 2013 U.S. Dist. LEXIS 132161 (N.D.
4 Cal. Sep. 12, 2013).

In that case, the plaintiff filed

5 a motion to strike the answers of two suspended6 corporation defendants.

Id. at *2.

The other

7 defendants opposed the motion, but specified that they
8 believed one of the suspended corporations had been
9 dissolved earlier and that the other, while suspended,
10 currently had an application pending to revive its
11 corporate status.

Id. at *2-3.

The other defendants

12 requested a stay until they could revive one suspended13 corporation defendant and determine why the other had
14 not yet been legally dissolved.

Id. at *3.

The court

15 granted the stay for two reasons: first, the court
16 noted that these defendants did not assert an
17 affirmative corporate right or privilege with knowledge
18 that the corporate status had been suspended and,
19 second, because a default would likely be set aside
20 once the suspended-corporation defendants’ statuses
21 were resolved.
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Id. at *4-6.

Such is not the case here.

First, Counter-

23 Defendants have not indicated what steps, if any, they
24 have taken to revive Counter-Defendant GFI, or if they
25 intend to do so.

To the extent that Counter-Defendants

26 are taking the position that Counter-Defendant GFI’s
27 ownership is ambiguous and contested, such a position
28 is entirely without merit given the plain language of
10

1 the Souther/Corrales Judgment and the legal distinction
2 between corporate assets and shares.
3

Second, even assuming, arguendo, that Counter-

4 Defendants are correct in that Counter-Claimants are
5 the current owners of Counter-Defendant GFI, that would
6 still not supply a reason to deny this Motion.

Not

7 only have Counter-Claimants not indicated any desire to
8 revive Counter-Defendant GFI, but such a situation
9 would still not supply good cause for setting aside a
10 default.

Indeed, if Counter-Claimants in fact did own

11 GFI, it would be nonsensical for Counter-Claimants to
12 seek entry of default against, to set aside a default
13 as to Counter-Defendant GFI, or to try to collect from
14 their own corporation.
15

As a suspended corporation, Counter-Defendant GFI

16 cannot, and could not, participate in this litigation.
17 As a result, its Answer is, on its face, legally
18 insufficient.

It is therefore appropriate for this

19 Court to strike Counter-Defendant GFI’s Answer.
20 Moreover, the Court finds that the responding Counter21 Defendants have failed to provide any coherent reason
22 to deny Counter-Claimants’ Motion.

As a result, the

23 Court GRANTS Counter-Claimants’ Motion to Strike Answer
24 on Behalf of Counterclaim Defendant Get Flipped, Inc.
25 [18].
26 B.

Request for Entry of Default

27

Counter-Claimants also request that this Court

28 enter default against Counter-Defendant GFI.
11

Mot.

1 6:16-20.
2

Pursuant to Federal Rule of Civil Procedure 55(a),

3 “[w]hen a party against whom a judgment for affirmative
4 relief is sought has failed to plead or otherwise
5 defend, and that failure is shown by affidavit or
6 otherwise,” default may be entered.
7 55(a).

Fed. R. Civ. P.

A Defendant must file a responsive pleading

8 within 21 days after being served with the summons and
9 Complaint.

Fed. R. Civ. P. 12(a)(1)(A).

As this Court

10 has stricken Counter-Defendant GFI’s Answer, it also
11 enters default against Counter-Defendant GFI.
12

Accordingly, the Court GRANTS Counter-Claimants’

13 request for this Court to enter default against
14 Counter-Defendant GFI.
15 C.

Request for Sanctions

16

Counter-Claimants include in their Reply a request

17 for sanctions against Counter-Defendants and Counter18 Defendants’ counsel.

Reply 6:18-7:3.

To the extent

19 that Counter-Claimants seek sanctions against Counter20 Defendants, they have failed to specify the grounds
21 under which sanctions are warranted.

To the extent

22 that Counter-Claimants are seeking sanctions pursuant
23 to Federal Rule of Civil Procedure 11, that Rule
24 requires that a “motion for sanctions [] be made
25 separately from any other motion and [] describe the
26 specific conduct that allegedly violates Rule 11(b).”
27 Fed. R. Civ. P. 11(c).

To the extent that Counter-

28 Claimants seek sanctions under 28 U.S.C. § 1927 for
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1 vexatious or unreasonable multiplication of the
2 proceedings, such sanctions “must be supported by a
3 finding of subjective bad faith.”

New Alaska Dev.

4 Corp. v. Guetschow, 869 F.2d 1298, 1306 (9th Cir.
5 1989).
6

As a result, the Court hereby DENIES Counter-

7 Claimants’ request for sanctions.
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IV.

Conclusion

For the foregoing reasons, the Court hereby GRANTS

10 Counter-Claimants’ Motion to Strike Answer Filed on
11 Behalf of Counterclaim Defendant Get Flipped, Inc.
12 [18].

The Court hereby ORDERS that the Answer filed on

13 behalf of Counter-Defendant GFI be stricken from the
14 record.

The Court also ORDERS that the Clerk shall

15 enter default against Counter-Defendant GFI.
16
17 IT IS SO ORDERED.
18 DATED: November 25, 2013
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HONORABLE RONALD S.W. LEW
Senior U.S. District Judge

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