Mossimo Holdings LLC v. Harry Haralambus et al

Filing 50

ORDER RE HARRY HARALAMBUS AND THE LAMBUS CORPORATION'S MOTIONS TO DISMISS PLAINTIFFS FIRST-AMENDED COMPLAINT 38 , 40 by Judge Dean D. Pregerson. For the foregoing reasons, the Court DENIES the motions to dismiss. IT IS SO ORDERED. (lom)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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MOSSIMO HOLDINGS LLC,

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Plaintiff,

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v.
HARRY HARALAMBUS, an
individual; ONWARD PACIFIC
LIMITED, a Hong Kong
corporation; BEYOND BLUE,
INC., a California
corporation; THE LAMBUS
CORPORATION; a California
corporation,

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Defendants.
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___________________________

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Case No. CV 14-05912 DDP (JEMx)
ORDER RE HARRY HARALAMBUS AND THE
LAMBUS CORPORATION’S MOTIONS TO
DISMISS PLAINTIFF’S FIRST-AMENDED
COMPLAINT
[Dkt. Nos. 38, 40.]

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Before the Court are motions to dismiss the Plaintiff’s First-

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Amended Complaint, filed separately by Defendants Haralambus and

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The Lambus Corporation (“TLC”). Having considered the parties’

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submissions and heard oral arguments, the Court adopts the

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following order.

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I.

BACKGROUND

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Mossimo, Inc. entered into a licensing agreement with

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Defendant Beyond Blue in 2001, granting Beyond Blue the right to

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sublicense the “Mossimo” trademark in the Philippines in exchange

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for a percentage of the royalties resulting from any such

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sublicensing.

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exhibit to show, that the terms of the licensing agreement gave it

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the right to 70% of royalties as well as the right to quarterly

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sales reports, the right to conduct audits; sublicenses also

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required Plaintiff’s prior written consent.

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1.)

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Plaintiff in 2006.

(FAC ¶ 3.)

Plaintiff alleges, and provides an

(Id. at ¶ 21; FAC, Ex.

Mossimo, Inc. then transferred ownership of the mark to
(Id. at ¶ 20.)

Plaintiff and Beyond Blue

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amended the license agreement in 2007.

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alleges, and provides an exhibit to show, that the amendment left

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all terms of the original agreement intact unless expressly

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amended.

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2007 amendment required Defendant Beyond Blue to pay guaranteed

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minimum royalties totaling $1,000,000 less a $200,000 credit.

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at ¶ 25.)

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interest in the license agreement to Onward Pacific (“Onward”),

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provided Onward agreed to be bound by the terms of the contract.

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(FAC, Ex. 2, ¶ 7.)

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(Id. at ¶ 22; FAC, Ex. 2.)

(Id. at ¶ 22.)

Plaintiff

Plaintiff alleges that the

(Id.

The amendment also allowed Beyond Blue to assign its

Plaintiff alleges that since 2007, Defendants Beyond Blue and

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Onward have not provided quarterly reports, paid the guaranteed

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royalties, or paid the required percentage of actual royalties.

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(Id. at ¶ 30.)

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an unauthorized sublicense agreement with nonparty Promark

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Industries (“Promark”) and that they concealed their breaches of

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the agreement until after the end of the agreement. (Id. at ¶ 32.)

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Further, Plaintiff alleges Defendant Haralambus formed TLC in

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Plaintiff also alleges that Defendants entered into

2008 for the purpose of receiving royalties from Promark in an
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effort to conceal and avoid having to account for those royalties

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to Plaintiff.

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letter to Haralambus in 2011 informing him that Onward was in

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default under the Amended License Agreement for failure to pay the

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guaranteed minimum royalties. Plaintiff alleges that in 2013,

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Haralambus caused $100,000 to be transferred from TLC’s account to

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pay Onward’s default.

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method of payment proves that Onward is unable to pay its

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obligations under the Amended License Agreement and that its income

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(Id. at ¶¶ 6, 35-36.)

(Id. at ¶ 45.)

has been commingled with Lambus Corp.

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Plaintiff alleges it sent a

Plaintiff alleges this

(Id. at ¶¶ 45-46.)

To the extent that Plaintiff was aware of breaches of the

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agreement, it alleges that it has made “repeated demands for

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performance.” (Id. at ¶ 31.)

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breach of contract, conversion, money had received, and fraud,

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demanding damages, accounting and injunctive relief.

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II.

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Plaintiff now brings this action for

LEGAL STANDARD
In order to survive a motion to dismiss for failure to state a

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claim, a complaint need only include “a short and plaint statement

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of the claim showing that the pleader is entitled to relief.”

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Atl. Corp. V. Twombly, 550 U.S. 544, 55 (2007) (quoting Conley v.

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Gibson, 355 U.S. 41, 47 (1957)).

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“sufficient factual matter, accepted as true, to state a claim to

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relief that is plausible on its face.”

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662, 678 (2009) (quoting Bell Atl. Corp. V. Twombly, 550 U.S. 544,

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570 (2007)).

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“accept as true all allegations of material fact and must construe

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those facts in the light most favorable to the plaintiff.”

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v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000).

Bell

A complaint must include

Ashcroft v. Iqbal, 556 U.S.

When considering a Rule 12(b)(6) motion, a court must

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Resnick

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III. DISCUSSION

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A.

Breach of Contract Claims

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Alter Ego Theory

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The Court previously dismissed Plaintiff’s breach of contract

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claim, apparently rooted in an “alter ego” theory of liability that

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would allow piercing of the corporate veil, because although

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Plaintiff had alleged some facts establishing the basic elements of

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alter ego theory,1 it had neither explicitly pleaded the theory nor

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explained which breaches of contract, specifically, could be fairly

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attributed to Defendants TLC and Haralambus.

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its FAC, Plaintiff realleges the breach of contract claims, but

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with additional factual allegations and a more direct allegation of

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“alter ego” liability.

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does not ascribe particular breaches to TLC and Haralambus; rather,

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Plaintiff asserts that Haralambus, TLC, and Onward are “each . . .

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alter egos of each other” and holds them all equally liable for

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each breach.

(FAC, ¶¶ 35-55.)

(Dkt. No. 34.)

In

However, Plaintiff still

(Id. at 52-54.)

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Defendants argue that because its FAC still does not specify

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which breaches justify piercing the corporate veil, Plaintiff has

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not corrected the deficiency the Court identified in its previous

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order.

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that under the particular species of alter ego theory it alleges, a

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theory called “single enterprise” theory, it is “not required to

(E.g., Reply of Haralambus at 4-5.)

Plaintiff counters

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The basic elements are “(1) that there be such unity of
interest and ownership that the separate personalities of the
corporation and the individual no longer exist and (2) that, if the
acts are treated as those of the corporation alone, an inequitable
result will follow.” Las Palmas Associates v. Las Palmas Ctr.
Associates, 235 Cal. App. 3d 1220, 1249 (1991).
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allege alter ego on a breach-by-breach basis.”

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Mot. Dismiss at 6:24-25.)

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(Opp’n to TLC’s

The Court begins with the general point that alter ego theory,

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in all its iterations, is an equitable tool, to be used to avoid

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injustice.

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235 Cal. App. 3d 1220, 1248 (1991).

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varying with the circumstances of the case.

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alter ego liability theory, the corporate veil is pierced only for

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particular purposes.

Las Palmas Associates v. Las Palmas Ctr. Associates,
It is a flexible determination
Id.

Under ordinary

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It is not that a corporation will be held liable for the acts

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of another corporation because there is really only one

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corporation. Rather, it is that under certain circumstances a

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hole will be drilled in the wall of limited liability erected

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by the corporate form; for all purposes other than that for

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which the hole was drilled, the wall still stands.

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Mesler v. Bragg Mgmt. Co., 39 Cal. 3d 290, 301 (1985).

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under the typical alter ego theory, the complaint should ordinarily

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state with some specificity what claim or claims justify “drilling

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a hole” in the “wall” of limited liability, in order to limit the

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damage to the corporate form.

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previous dismissal (along with a finding that Plaintiff’s Complaint

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did not clearly state the alter ego theory).

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Therefore,

This was the idea behind the Court’s

But under the “single enterprise” version of alter ego

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liability, it is the case that “there is really only one

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corporation.”

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Associates v. Las Palmas Ctr. Associates, states that “[i]n effect

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what happens is that the court, for sufficient reason, has

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determined that though there are two or more personalities, there

Id.

The leading case on the subject, Las Palmas

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is but one enterprise; and that this enterprise has been so handled

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that it should respond, as a whole, for the debts of certain

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component elements of it.”

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See also Toho-Towa Co. v. Morgan Creek Prods., Inc., 217 Cal. App.

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4th 1096, 1108, 159 Cal. Rptr. 3d 469, 480 (2013) (“The

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‘single-business-enterprise’ theory is an equitable doctrine

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applied to reflect partnership-type liability principles when

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corporations integrate their resources and operations to achieve a

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common business purpose.”).

235 Cal. App. 3d 1220, 1249-50 (1991).

Thus, if Plaintiff adequately pleads a

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“single enterprise” theory, it may apply the breach of contract

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claims to TLC and Haralambus as though they were, essentially,

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partners in a common venture.

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that they are jointly and severally liable for the obligations of

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the enterprise.

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Under California law, this means

Cal.Corp.Code § 16306(a).

The Court holds that the FAC adequately pleads “single

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enterprise” theory.

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alter ego theory for the reasons given as to the original Complaint

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in the previous order (Dkt. No. 34), and because the FAC adds new,

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specific allegations that Onward was undercaptalized and that

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Haralambus used money from TLC to pay Onward’s debts.2

It adequately pleads the basic elements of

(FAC ¶¶ 44-

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The “unity of interest and ownership” prong of alter ego
theory may be proven by, inter alia, commingling of funds, the
undercapitalization or complete lack of assets of a corporation,
the use of a corporation as a mere shell, instrumentality or
conduit for a single venture, the disregard of legal formalities
and the failure to maintain arm's length relationships among
related entities, the diversion of assets from a corporation by or
to a stockholder or other person or entity, to the detriment of
creditors, or the manipulation of assets and liabilities between
entities so as to concentrate the assets in one and the liabilities
in another, and the formation and use of a corporation to transfer
to it the existing liability of another person or entity.
Greenspan v. LADT, LLC, 191 Cal. App. 4th 486, 512-13 (2010).
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45.)

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previously only implicit.

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the two corporations were merely fraudulent entities constructed in

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pursuit of a single enterprise.

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were several actors they operated together with a singular purpose

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– to defraud.”).)

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contract against TLC and Haralambus based on Onward’s liability for

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the contract.

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2.

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Plaintiff has now made explicit the alter ego theory that was
And Plaintiff alleges specifically that

(Id. at ¶¶ 8, 47 (“Though there

This is enough to state a claim for breach of

Lack of Contract/Statute of Frauds
Defendants also assert that Onward cannot be held liable for

Beyond Blue’s obligations under the Amended License Agreement.
Defendants’ first theory is simply that Plaintiff “fails to

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allege that Onward, in its own capacity, assumed the obligations of

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Beyond Blue.”

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reading of the FAC, which states that “Haralambus, as Director

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and/or President of Onward . . . caused Beyond Blue to assign its

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rights and interests under the Amended License Agreement to

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Onward.”

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alleged that Onward, TLC, and Haralambus were essentially working

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as a single entity, the FAC adequately alleges that Haralambus, as

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an officer of Onward, effected the assignment.

(TLC’s Mot. Dismiss at 4.)

(FAC, ¶ 28.)

This is a peculiar

Even if Plaintiff had not adequately

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Defendants’ next argument is that there is no specific

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allegation that the assignment was in writing, and therefore the

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statute of frauds precludes the claim.

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4:15-5:2.)

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claim at this point, for several reasons.

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that there was an “assignment” could easily mean that there was a

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written assignment; the Court declines to require Plaintiff to

(TLC’s Mot. Dismiss at

That may be true, but it is not dispositive of the

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First, the allegation

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amend the FAC solely to add the word “written.”

Second, and more

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importantly, the statute of frauds is an affirmative defense that a

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party may be estopped from using “where necessary to prevent either

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unconscionable injury or unjust enrichment.”

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Inc., 39 Cal. 3d 18, 27 (1985).

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sufficient facts showing that Onward acted as though it had

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authority to use Plaintiff’s mark and was enriched by the use and

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licensing of the mark.

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argument may ultimately prove unsuccessful, the inquiry is fact-

Tenzer v. Superscope,

Plaintiff has certainly alleged

(FAC, ¶¶ 30-43.)

While the estoppel

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specific and generally cannot be determined at the pleading stage.

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Byrne v. Laura, 52 Cal. App. 4th 1054, 1068 (1997).

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The Court therefore finds that the breach of contract claims

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are adequately pled.

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as to the validity of the Statute of Frauds defense.

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B.

The Court makes no determination at this time

Conversion and Money Had and Received Claims Against

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Haralambus

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The Court had previously dismissed claims against Haralambus

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for conversion and money had and received, because it was not

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specifically alleged that Haralambus either personally received the

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money or used TLC as his alter ego.

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adequately pled alter ego liability, as noted above, and the FAC

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also now specifically alleges that TLC collected and diverted

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royalties “for Haralambus’ personal uses.”

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these allegations are enough to support the conversion and money

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had and received claims.

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C.

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However, Plaintiff has now

(FAC, ¶ 41.)

Together,

Claims Against TLC for Actions Taken Prior to 2008
Defendant TLC argues that it cannot be held liable for either

fraudulent representations made, or breaches of contract committed,
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before September 2008, when it was incorporated.

(TLC’s Mot.

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Dismiss at 5-6.)

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that Onward, TLC, and Haralambus were effectively a single

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enterprise, it does not matter that TLC did not exist at the time

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of the alleged fraud or breach.

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to say that someone engaged in a fraudulent single enterprise may

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effectively commit a series of breaches or torts and then leave the

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liability behind with an older entity, while moving assets to a new

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entity.

However, because Plaintiff adequately alleges

Indeed, to hold otherwise would be

This is precisely the sort of corporate shell game the

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single enterprise theory is intended to deter.

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that claims against TLC may include actions taken on behalf of the

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alleged single enterprise prior to the incorporation of TLC.

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IV.

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The Court holds

CONCLUSION
For the foregoing reasons, the Court DENIES the motions to

dismiss.

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IT IS SO ORDERED.

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Dated: February 3, 2015
DEAN D. PREGERSON
United States District Judge

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