UL LLC v. The Space Chariot Inc. et al

Filing 74

MINUTES OF Motion Hearing held before Judge Christina A. Snyder RE: Plaintiff UL's Motion for Civil Contempt and Sanctions 57 . The Court finds defendants in contempt of the TRO and the Preliminary Injunction. In light of the character and magn itude of defendants' violations of the TRO and Preliminary Injunction and the necessity of deterring defendants' conduct in violation of the Court's orders, the Court GRANTS UL's request and (1) Orders an asset freeze--with the ex ception of ordinary living expenses and rent as provided under the Preliminary Injunction--effective immediately, until defendants' satisfactorily comply with the Court's orders; (2) Orders defendants to produce--on or before 4/17/2017--all bank statements, accounting, and income records in their possession, custody, and control from 7/1/2015 to present. (3) Orders defendants to produce--on or before 4/17/2017--all documents relating to spacechariotca.com and any other websites they cr eated, owned, or controlled that bear counterfeit UL marks; (4) Orders defendants to produce--on or before 4/17/2017--all documents related to any internet hosts, domain name registrars, and financial institutions with whom defendants have a relation ship; and (5) Awards costs and attorneys' fees incurred by UL for issuing subpoenas to third party banks to obtain defendants' bank records, for investigating the dispersing of defendants' assets, and for filing its motion and reply. I n addition, the Court orders defendants to account for the $42,500 in dissipated assets, specifying the amounts paid to third parties and the identity of the third-party recipients of such payments, and providing documents that support this acco unting. Defendants shall provide such an accounting on or before 4/17/2017. Accordingly, the Court directs UL to submit a request for attorneys' fees and costs on or before 4/24/2017, specifying the amount they seek to recover. Defendants shall file an opposition to this request on or before 5/8/2017. In accordance with the foregoing, the Court GRANTS UL's motion for contempt and sanctions. Court Reporter: Laura Elias. (gk)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No. 
Title 

CIVIL MINUTES – GENERAL
‘O’
2:16-cv-08172-CAS(AFMx)
Date April 10, 2017
UL LLC v. THE SPACE CHARIOT INC. ET AL.

Present: The Honorable 

CHRISTINA A. SNYDER 

Attorneys Present for Plaintiffs: 

N/A 

Tape No.

Attorneys Present for Defendants: 

Cameron Nelson

Joseph Lopez 

Catherine Jeang 
Deputy Clerk 

Laura Elias 
Court Reporter / Recorder

Matthew Gersham
Proceedings:  

PLAINTIFF UL’S MOTION FOR CIVIL CONTEMPT AND
SANCTIONS (Dkt. 57, filed March 7, 2017)

I.

INTRODUCTION

On November 3, 2016, plaintiff UL LLC filed this action against defendants The
Space Chariot, Inc., Kevin Walker, Donabelle Escarez Mortel (aka Donabella Mortel),
and John Does 1–10. Dkt. 1. UL asserts five claims: (1) trademark infringement, 15
U.S.C. § 1114; (2) counterfeit of registered marks, 15 U.S.C. § 1114; (3) unfair
competition and false designation of original and false and misleading representations, 15
U.S.C. § 1125(a); (4) unfair competition in violation of California Business and
Professions Code §§ 17200 et seq.; and (5) false advertising under California Business
and Professions Code §§ 17500 et seq. The gravamen of UL’s complaint is that Space
Chariot, Walker, and Mortel (“defendants”) are using UL marks on various websites to
falsely represent that Space Chariot’s goods—namely, hoverboards—have been certified
by UL.1
Also on November 3, 2016, UL filed an ex parte application for a temporary
restraining order, seizure order, expedited discovery, and order to show cause re:
preliminary injunction. Dkts. 4, 7. On the same day, the Court denied UL’s application
for a seizure order. Dkt. 12.
On November 17, 2016, the Court granted UL’s motion for a temporary restraining
order and ordered defendants to show cause why a preliminary injunction should not be

1

The underlying facts of this case are known to the parties and are set forth in this
Court’s prior orders, including the Court’s order dated January 9, 2017. See dkt. 36.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No. 
Title 

CIVIL MINUTES – GENERAL
‘O’
2:16-cv-08172-CAS(AFMx)
Date April 10, 2017
UL LLC v. THE SPACE CHARIOT INC. ET AL.

issued. Dkt. 25 (“TRO”). On December 9, 2016, the parties stipulated to a preliminary
injunction. Dkt. 31. Pursuant to this stipulation, the Court: (1) enjoined defendants from,
inter alia, using UL marks and dispersing personal and corporate assets; and (2) ordered
defendants to, inter alia, (a) produce all bank statements in their possession or control,
(b) identify all persons affiliated with the domain names truehoverboard.com,
perfecthoverboards.com, and spacechariotca.com, and identify the nature of the
relationship between defendants and those domain names, and (c) provide an accounting
of any assets having a value greater than $5,000 and the location and identify thereof.
Dkt. 33 (“Preliminary Injunction”).
On January 9, 2017, the Court denied Walker and Mortel’s motion to dismiss UL’s
claims against them. Dkt. 36.
On March 3, 2017, the Court granted defendants’ request for a continuance of the
hearing on UL’s motion for partial summary judgment. Dkt. 57. At that time, however,
the Court took note of UL’s “serious allegations that defendants have been dissipating
assets in violation of the Court’s preliminary injunction.” Id. at 2. The Court
“admonish[ed] defendants to comply with the Court’s injunction” and warned that
“[f]ailure to do so may result in the imposition of sanctions.” Id.
On March 7, 2017, UL filed a motion for civil contempt and sanctions on the
grounds that defendants violated portions of the TRO and the Preliminary injunction.
Dkt. 57 (“Motion”). Defendants filed their opposition on March 20, 2017, dkt. 58
(“Opp’n”), and UL filed its reply on March 27, 2017, dkt. 59 (“Reply”).
Having carefully considered the parties’ arguments, the Court concludes as
follows.
II.

LEGAL STANDARD

“[C]ourts have inherent power to enforce compliance with their lawful orders
through civil contempt.” California Dep’t of Soc. Servs. v. Leavitt, 523 F.3d 1025, 1033
(9th Cir 2008) (quoting Shillitani v. United States, 384 U.S. 364, 370 (1966)). A party
requesting an adjudication of civil contempt must establish “by clear and convincing
evidence that the contemnors violated a specific and definite order of the court.” Stone v.
City and County of San Francisco, 968 F.2d 850, 856 n.9 (9th Cir. 1992). “The burden
then shifts to the contemnors to demonstrate why they were unable to comply.” Id. The
respondent’s conduct “need not be willful” to violate a court order, and there is “no good

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No. 
Title 

CIVIL MINUTES – GENERAL
‘O’
2:16-cv-08172-CAS(AFMx)
Date April 10, 2017
UL LLC v. THE SPACE CHARIOT INC. ET AL.

faith exception to the requirement of obedience.” In re Dual-Deck Video Cassette
Recorder Antitrust Litigation, 10 F.3d 693, 695 (9th Cir. 1993). However, a respondent
may avoid being found in contempt by demonstrating that their failure to comply with a
court order was “based on a good faith and reasonable interpretation of the order.” Id.
Additionally, “contempt is appropriate only when a party fails to comply with a court
order that is both specific and definite.” Balla v. Idaho State Bd. of Corr., 869 F.2d 461,
465 (9th Cir. 1989).
“Sanctions for civil contempt may be imposed to coerce obedience to a court order,
or to compensate the party pursuing the contempt action for injuries resulting from the
contemptuous behavior, or both.” General Signal Corp. v. Donallco, Inc., 787 F.2d 1376,
1380 (9th Cir. 1986). Coercive fines, or any portion thereof, are payable to the Court
rather than to the opposing party. Id. When imposing a coercive civil contempt sanction,
a court should consider: (1) the character and magnitude of the harm from continued
noncompliance; (2) the probable effectiveness of any sanctions in achieving future
compliance; (3) the amount of defendant’s financial resources; and (4) the willfulness of
the violating party. See United States v. United Mine Workers of Am., 330 U.S. 258,
303–04 (1946); General Signal Corp, 787 F.2d at 1380. The amount of a compensatory
fine, on the other hand, should be based upon the movant’s actual losses suffered as a
result of the violation. See Shuffler v. Heritage Bank, 720 F.2d 1141, 1148 (9th Cir.
1983).
III.

DISCUSSION

UL has demonstrated by clear and convincing evidence that defendants have
violated the TRO and the Preliminary Injunction.
UL has shown that defendants owned and controlled the domain names
truehoverboard.com and perfecthoverbaords.com, which were operational as of
December 6, 2016 and which sold the same products as the original Space Chariot
website and included UL marks.2 However, the TRO ordered defendants to disable the

2

See, e.g., dkt. 50-7, Ex. 34 (on November 27, 2016, defendants posted to the
Space Chariot Facebook page “Don’t forget you can get a Space Chariot hoverboard
from True Hoverboard!...Check them all out at www.TrueHoverboard.com”); dkt. 50-8,
Ex. 35 (the “truehoverboards” Instagram account included several references to Space
Chariot, the Space Chariot logo, and many references to UL and purported UL 2272

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No. 
Title 

CIVIL MINUTES – GENERAL
‘O’
2:16-cv-08172-CAS(AFMx)
Date April 10, 2017
UL LLC v. THE SPACE CHARIOT INC. ET AL.

domain name spacechariot.com; enjoined defendants from using the UL marks in
connection with the sale of merchandise not authorized by UL, and enjoined defendants
from offering for sale any hoverboards not certified by UL. TRO at 3, 6.
UL has shown that defendants dispersed assets in violation of the TRO by selling
the domain name perfecthoverboards.com for $15,000 to Richard Harrison on November
21, 2016.3 On November 23, 2016, Walker withdrew $8,000, the first installment paid by
Harrison, from the Space Chariot bank account.4
UL has shown that defendants dispersed assets in violation of the Preliminary
Injunction by selling for $27,500 the domain names spacechariot.com and
truehoverboard.com, along with the corresponding social media accounts, to Aaron
Wesel on December 15, 2016.5
UL has shown that defendants failed to provide a full accounting of assets having a
value of more than $5,000, in violation of the Preliminary Injunction, because defendants

certification); dkt. 50-15, Declaration of Aaron Wesel (stating that he purchased the
spacechariot.com and truehoverboard.com domain names, along with associated
Facebook and Instagram accounts, for $25,000 from “Creative Geniuses,” an entity with
whom he corresponded using the email address [e-mail]); dkt. 5012, Ex. 44 (the domain name thecreativegeniuses.com was registered by Walker).
3

See, e.g., dkt. 57-1, Declaration of Richard Harris (stating that he purchased the
domain name perfecthoverboard.com from “Creative Geniuses, Inc.” after
communicating with “Kevin” via an online marketplace and via email to the email
address info@the creativegegeniuses.com); dkt. 57-4, Ex. 12 (bank record showing a
November 23, 2016 deposit of $8,000 into the Space Chariot bank account from Richard
Harris).
4

Dkt. 57-4, Exs. 12, 13.

5

See, supra note 2; dkt. 57-4, Ex. 14 (bank record showing a deposit of $27,500 on
December 16, 2016 into the Space Chariot bank account from Aaron Wesel).

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No. 
Title 

CIVIL MINUTES – GENERAL
‘O’
2:16-cv-08172-CAS(AFMx)
Date April 10, 2017
UL LLC v. THE SPACE CHARIOT INC. ET AL.

listed only Walker’s 2012 Porsche Panamera, and did not include the domain name and
social media accounts for Space Chariot, True Hoverboard, or Perfect Hoverboard.6
UL has shown that defendants failed to provide a full accounting of living
expenses, business expenses, and transfers of assets, in violation of the Preliminary
Injunction, because, inter alia, defendants did not disclose their lease agreement.7
UL has shown that defendants failed to abide by asset freeze required by the TRO
and the Preliminary Injunction, which both restricted living expense to less than $4,000
per month.8
UL has shown that defendants produced only two months’ of bank statements (for
August and September 2016), in violation of the Preliminary Injunction’s requirement
that defendants produce all bank statements in their possession, custody, and control from
July 1, 2015 to the present by December 15, 2016.9
Defendants do not dispute UL’s contentions or evidence. Rather, defendants
contend that they sold the domain names and websites of Space Chariot in order to fund
their defense of this lawsuit. Opp’n at 5. Defendants assert that they were under the
impression that their counsel had reached an agreement with plaintiff’s counsel that the
domain names could be sold to fund their legal defense because, on or about November
21, 2016, defendants’ attorney at the time (Yuri Galperin) sent an email to plaintiff’s
counsel that stated: “Per our conversation of today’s date, this email serves to confirm
that we have agreed that Defendants’ retainer payment to our firm will not violate the
asset freeze order.” Id.; see dkt. 58-1. Defendants contend that “approximately seventy
percent (70%) of the funds from these sales went towards paying Defendants’ legal fees.”
Opp’n at 6. Defendants assert that their legal fees are particularly high because of UL’s
“aggressive litigation tactics.” Id. Finally, defendants assert that they are in poor

6

Dkt. 57-4, Ex. 5.
Dkt 54-7, Exs. 6–9. In response to the instant motion, Walker submitted the
cover page to his lease. See dkt. 58-9.
7

8

Dkt. 54-7, Ex. 11 (bank statement for Space Chariot showing ATM and debit
card withdrawals in excess of $4,000 in the last two weeks of November, after the TRO
had been issued on November 17, 2016).
9

Dkt. 50-3 ¶ 38.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No. 
Title 

CIVIL MINUTES – GENERAL
‘O’
2:16-cv-08172-CAS(AFMx)
Date April 10, 2017
UL LLC v. THE SPACE CHARIOT INC. ET AL.

financial condition and they would not be able to support themselves should the Court
impose any further asset freeze. Id. at 8.
Defendants’ arguments fall short for several reasons. First, an agreement that
defendants’ retainer payments to their counsel do not violate the TRO does not permit
defendants to dissipate assets (for which they failed to account) to make those payments.
Second, defendants offer no documentation showing that 70 percent of the proceeds from
these dissipated assets went toward legal fees. Notably, defendants’ previous counsel
returned $12,000 in legal fees.10 Third, even if it is true that 70 percent of the dissipated
assets were spent on legal fees, defendants do not account for the remaining 30 percent
($12,750). If the TRO and the Preliminary Injunction (to which defendants stipulated)
caused defendants hardship, the proper course of action was to seek a modification of the
Court’s orders, not to defy them. See A&M Records, Inc. v. Napster, Inc., 284 F.3d
1091, 1098 (9th Cir. 2002) (“A district court has inherent authority to modify a
preliminary injunction in consideration of new facts.”)
The Court finds defendants in contempt of the TRO and the Preliminary
Injunction. In light of the character and magnitude of defendants’ violations of the TRO
and Preliminary Injunction and the necessity of deterring defendants’ conduct in violation
of the Court’s orders, the Court GRANTS UL’s request and
(1) Orders an asset freeze—with the exception of ordinary living expenses and rent
as provided under the Preliminary Injunction—effective immediately, until
defendants’ satisfactorily comply with the Court’s orders;
(2) Orders defendants to produce—on or before April 17, 2017—all bank
statements, accounting, and income records in their possession, custody, and
control from July 1, 2015 to present.
(3) Orders defendants to produce—on or before April 17, 2017—all documents
relating to spacechariotca.com and any other websites they created, owned, or
controlled that bear counterfeit UL marks;

10

Dkt 57-4, Ex. 11 (bank records showing the return of $1,000 by the IP
technology Legal Group and the return of $11,000 by Lieber & Galperin).

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No. 
Title 

CIVIL MINUTES – GENERAL
‘O’
2:16-cv-08172-CAS(AFMx)
Date April 10, 2017
UL LLC v. THE SPACE CHARIOT INC. ET AL.

(4) Orders defendants to produce—on or before April 17, 2017—all documents
related to any internet hosts, domain name registrars, and financial institutions with
whom defendants have a relationship; and
(5) Awards costs and attorneys’ fees incurred by UL for issuing subpoenas to third
party banks to obtain defendants’ bank records, for investigating the dispersing of
defendants’ assets, and for filing its motion and reply.
See Motion at 10. In addition, the Court orders defendants to account for the $42,500 in
dissipated assets, specifying the amounts paid to third parties and the identity of the thirdparty recipients of such payments, and providing documents that support this accounting.
Defendants shall provide such an accounting on or before April 17, 2017.
Accordingly, the Court directs UL to submit a request for attorneys’ fees and costs
on or before April 24, 2017, specifying the amount they seek to recover, documenting the
hours expended and the hourly rates of their counsel, and demonstrating that those rates
are consistent with those prevailing in the community given the skill, experience, and
reputation of UL’s counsel. Defendants shall file an opposition to this request on or
before May 8, 2017.
IV.

CONCLUSION

In accordance with the foregoing, the Court GRANTS UL’s motion for contempt
and sanctions.
IT IS SO ORDERED.
00 
Initials of Preparer

: 

23 

CMJ 

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