Total Recall Technologies v. Palmer Luckey, et al

Filing 179

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT SUBJECT TO STATED CONDITIONS, re: 135 Status Report due by 1/5/2017. Further Case Management Conference set for 1/12/2017 11:00 AM in Courtroom 8, 19th Floor, San Francisco.. Signed by Judge Alsup on 6/16/16. (whalc1, COURT STAFF) (Filed on 6/16/2016)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 TOTAL RECALL TECHNOLOGIES, 11 For the Northern District of California United States District Court 10 Plaintiff, 12 13 14 No. C 15-02281 WHA v. ORDER GRANTING MOTION FOR SUMMARY JUDGMENT SUBJECT TO STATED CONDITIONS PALMER LUCKEY and OCULUS VR, LLC, as successor-in-interest to Oculus VR, Inc., 15 Defendants. / 16 17 INTRODUCTION 18 A partnership agreement between two persons provided that no lawsuit would be 19 maintained without the approval of both. Over the objection of one, the other brought a lawsuit 20 in the name of the partnership against third parties, who now move to dismiss the suit as 21 unauthorized. Subject to certain conditions, their motion is GRANTED. 22 STATEMENT 23 1. 24 Plaintiff Total Recall Technologies (“TRT”) is a general partnership of Thomas Seidl TOTAL RECALL TECHNOLOGIES. 25 and Ron Igra formed in 2010 in Hawaii for the purpose of developing virtual reality technology. 26 Seidl and Igra entered into a written partnership agreement to govern TRT. Paragraph 19 of the 27 partnership agreement provided: 28 Thomas Seidl or Ron Igra has the right to Vito [sic]. This means that for any decision regarding the company Ron Igra and Thomas 1 Seidl have to agree on any action with the exception of an event laid out in point 20. 2 The partnership agreement did not define the uncapitalized word “company”; however, 3 there is no dispute that Paragraph 19 referred to decisions involving TRT. The exception 4 detailed in Paragraph 20 concerned a buy-out, which all agree is not applicable here. The 5 partnership agreement contained an integration clause and stated that it could be amended “only 6 by the written agreement” of all partners (Exh. A ¶¶ 16, 19–20).1 7 2. PALMER LUCKEY. 8 In August 2011, Seidl entered into an agreement with defendant Palmer Luckey 9 pursuant to which Luckey was to make a prototype for a head-mounted virtual reality display 10 provisions relating to confidentiality and exclusivity. Although Seidl negotiated the agreement For the Northern District of California United States District Court according to certain specifications supplied by Seidl. That agreement included various 11 12 with Luckey and ultimately signed it in his own name, Igra provided the funding for materials 13 for Luckey’s prototype. This order presumes for the sake of argument that Seidl made the 14 agreement on behalf of TRT. 15 In April 2012, without informing anyone at TRT, Luckey formed Oculus LLC (later 16 re-registered as defendant Oculus VR, LLC), and he raised more than one hundred million 17 dollars through crowd-funding and venture financing in order to commercialize head-mounted 18 virtual reality displays. 19 The complaint herein contends that Luckey violated the confidentiality and exclusivity 20 terms of the agreement between Seidl and Luckey and misappropriated Seidl’s design features. 21 3. SEIDL’S OBJECTION. 22 After Oculus and its fabulous financing became public, a running dispute ensued 23 between Seidl and Igra over whether to sue Luckey for supposedly stealing their prototype 24 ideas. Igra wanted to sue. Seidl did not. Here are the details. 25 26 27 28 1 All lettered exhibits cited herein are appended to the declaration of Mark F. Lambert or his supplemental declaration and submitted in support of defendants. Numbered exhibits 1–5 are appended to the declaration of Ron Igra and submitted in support of plaintiff. Numbered exhibits 6–15 are appended to the declaration of Charles M. Stiernberg and submitted in support of plaintiff. 2 1 2 Igra requested that Seidl provide him with a copy of his agreement with Luckey. Seidl complied, via email, as follows (Exh. E) (emphasis in original): 3 Here is the [P]almer contract. 4 DO NOT CONTACT HIM OR START ANY LEGAL ACTION WITHOUT TALKING TO ME FIRST. 5 We need him. Much more useful as an ally. 6 Two months later, Seidl repeated that admonition in the following exchange on Skype, a text 7 messaging platform (Exh. F at 16038) (errors in original): 8 12 [IGRA]: Hi Tom. As I mentioned on Friday, I need to talk to you about our case with Palmer Luckey. The matter is urgent and I’ve waited for over 3 weeks to hear from you, I can wait no longer. I’ve hired a litigation lawyer [REDACTION]. Please send me copies of the emails or skype conversations you had with him concerning the [head-mounted display]. I’m going to give you until 5 pm tomorrow to respond to me and if I don’t get your cooperation, I will take legal action against you as well. 13 [SEIDL]: Sure take legal action aghainst me and see what happens 14 [SEIDL]: what you going to sue me for? 15 [obscenities omitted] 16 [SEIDL]: as I told you don’t sue palmer 9 11 For the Northern District of California United States District Court 10 17 In March 2014, Facebook Inc. announced that it would acquire Oculus for more than 18 two billion dollars. Igra then followed up with Seidl, again seeking his cooperation in a lawsuit 19 against Luckey so they could “both get rich,” but Seidl responded, “my views on taking 20 [P]almer to court are the same as before that it makes bad financial sense for you and me” 21 (Exh. F at 16042). Nevertheless, Igra retained counsel. 22 In April 2014, Igra commenced an action against Seidl in Hawaii state court (where 23 TRT was founded and based) seeking the production of certain documents and information 24 pertaining to the agreement with Luckey. Igra dismissed that action without prejudice once 25 Seidl provided documents. Then, Igra wrote the following email to Seidl (Exh. I at 8658–59): 26 27 I hope you will cooperate with me on this and withdraw your veto and give us your support so that Robert [Stone of Quinn Emanuel, Igra’s counsel,] and I can continue working on getting us the damage settlement. 28 3 1 The way I see it is that you have a choice to make between 2 options: 2 3 1. If you cooperate with us on this case against Palmer we can get rich from a damage settlement and I promise to make it worthwhile for you in the future business we will be doing together. 4 5 6 7 8 9 To this “get rich” proposal, Seidl responded, in pertinent part, regarding the veto and the progress on TRT’s camera technology (Exh. I at 8655) (errors in original): My thoughts on the vito have not changed. Especially as video is this close and option from two sources. 11 For the Northern District of California United States District Court 10 2. You choose not to cooperate — in which case I will go to great effort to get what I feel belongs to me and we will both waste time and money fighting against each other in court and veto actions. The chances of our business succeeding together would be slim to none and eventually I will hold you responsible for the damages that both you and Palmer caused me. 12 You said Palmer breached the contract, where was that? You said Palmer stole our ideas, which ideas were those? 13 In a subsequent exchange, Seidl further admonished Igra for pushing this litigation 14 15 16 (Exh. J at 8651): You carry on the way with threatening Palmer you will burn the one advantage we have from dealing with Palmer, that he feels he owes us on a moral level. Because he does not owe us on a legal level. Don’t go messing things up. 17 In December 2014, Igra filed a second lawsuit against Seidl in Hawaii over his refusal to 18 agree to what became this very lawsuit. The Hawaii suit asserted claims for breach of fiduciary 19 duty, breach of the partnership agreement, and wrongful appropriation of partnership 20 opportunities. Igra sought specific performance compelling Seidl to authorize action against 21 Luckey and to allow Igra to hire the law firm of his choice to that end. Alternatively, Igra 22 sought an order divesting Seidl of his veto power. Igra did not seek damages (Exh. K at 9–10) 23 (Complaint in Second Hawaii Action). The second Hawaii action remains pending. Although 24 trial in Hawaii was originally scheduled to occur in May 2016, the parties recently agreed to 25 continue the trial until December — after the trial then scheduled herein. 26 On January 18, 2015, at a time when the Hawaii suit was underway, Igra and Seidl met 27 to discuss the possibility of a lawsuit against Luckey and Oculus as well as a strategy to pursue 28 an opportunity to demonstrate to Luckey and Facebook TRT’s own camera technology (which 4 1 could capture video for use on virtual reality displays). That night, Seidl sent Igra “minutes” of 2 the meeting stating that Seidl would write a letter to Luckey seeking to preserve rights against 3 him while also arranging a demonstration (Exh. 1 at 3847). Igra responded on the morning of 4 January 19, adding that they planned to give Luckey two weeks to arrange for Facebook to offer 5 to acquire TRT, and “[i]f we do not receive a significant offer within 2 weeks you agreed to 6 cooperate with the lawsuit against Palmer/Oculus and thereby remove your veto” (Exh. 1 7 at 3846). 8 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 Still on the 19th, Seidl’s response then retreated from Igra’s characterization of the terms, stating (Exh. 1 at 3845) (errors in original): About the 2 weeks, lets see how fast we get to [Facebook CEO Mark Z]uckerberg. If we are having one to one dialogue with Zuckerberg in 3 week of video to palmer. Then we should extend to 6 weeks that gives us enough time before statute of limitations don’t you think? [REDACTION]. We can play by ear. But I assure you. If we getting nothing from Palmer prior to the end date to file. I will file. I cant believe you think I am that stupid. Is all about how palmer responds. If we get zero feedback from Palmer after 2 weeks we go there lawyered up to facebook. We have to see how fast to zuckerberg. That is the goal. 17 Later on January 19, Igra again pushed the two-week deadline, responding “[w]e 18 agreed to wait 2 weeks for a response and there will be no extensions unless there is an offer or 19 a very positive sign of getting one. Let us not forget that we can still negotiate a buyout after 20 the complaint has been filed and our leverage will also be much better” (Exh. 1 at 3845). That 21 afternoon, Seidl responded, “Happy with that. If no positive signs in 2 weeks of contacting 22 him” (Exh. 1 at 3844). 23 24 25 Also on January 19, in a separate fork of the same email exchange, Seidl reminded Igra of a further condition (Exh. Q at 8047) (errors in original): Opps. Forgot an important note to the minutes. Think we should do minutes now always. 26 27 You agreed to go and see an independent attorney to evaluate the case. The attorney must be made clear to that they will receive no money from settlement. 28 5 1 Please CC me on all emails. Then lets conference call. I will give him all info. But make it clear to him from the start he is not getting anything from any settlement. Must be an attorney you not used in the past. 2 3 You should do that before making any legal play towards palmer. We will know how aggressive can be then. Should only take a few days for an attorney to go over the emails. Could save $500k in legal bills. 4 5 6 On January 22, Igra informed Seidl by email that upon further reflection he “concluded 7 there [was] no intent on [Seidl’s] part to cooperate in the case against Palmer” (Exh. S 8 at 2329). demonstration of TRT’s camera technology. On February 22 (after they had contacted 11 For the Northern District of California Sometime in February, both Igra and Seidl contacted Luckey about arranging a 10 United States District Court 9 Luckey), Seidl restated his position to Igra that the priority was a business deal with Luckey, 12 “We don’t need legal action against [P]almer for a deal. We would always bluff that the case 13 is strong. Stop wasting my time” (Exh. U at 3737). Later that day, Seidl wrote to Igra, 14 “Again. Do not take any legal action against [P]almer” (Exh. T at 7970). Igra acknowledged 15 Seidl’s refusal to agree regarding this action and wrote, “[u]nfortunately, your refusal to 16 cooperate in making our legal claims against Luckey are stopping the partnership from getting 17 what it is rightfully due” (Exh. U at 3736). These were the final communications between 18 Seidl and Igra regarding this lawsuit prior to its commencement. 19 On February 24, Seidl emailed Luckey and asked him to sign a letter acknowledging 20 TRT’s reservation of rights under their prior agreement in conjunction with the planned 21 demonstration, noting “Ron [Igra] says I could not speak to you without it.” The reservation of 22 rights specifically concerned TRT’s rights to assert the very claims in this action but also 23 included certain confidentiality provisions relating to the technology Seidl hoped to 24 demonstrate (Exh. 2 at 997). Although Igra is listed as a recipient of the email, Seidl’s email to 25 Luckey also included a laundry list of complaints about Igra’s conduct, noting that Igra’s 26 counsel served “legal documents trying to stop the demo [from] going ahead,” that Igra had 27 failed to deliver on promises of financial backing, and that he had refused to appear at a trade 28 conference (Exh. 2 at 994–95). Seidl sent Luckey a second email on the 24th (Exh. 3): 6 1 Just got another letter from Ron[’]s attorney trying to prevent me from showing you a demo. Luckily there is nothing that stops me from showing you a demo. That guy is mad. 2 3 The next day, Luckey responded to Seidl, with Igra copied, asking about the logistics of 4 the demonstration and stating that he couldn’t sign the reservation of rights. Instead, Luckey 5 appended the standard form Oculus nondisclosure agreement in furthering a potential 6 demonstration (Exh. 3). Igra, as a copy recipient, then replied on February 27, stating that 7 Luckey would have to sign a rider on the nondisclosure agreement, providing that neither the 8 Oculus form agreement nor the proposed demonstration waived or limited TRT’s rights to any 9 claim against Luckey or Oculus, nor would it limit the information TRT could use in investigating its claims (Exh. 4 at 1935). On March 9, Luckey refused (Exh. 5). No further 11 For the Northern District of California United States District Court 10 communication about the demonstration occurred before Igra commenced this action in TRT’s 12 name. 13 4. 14 In May 2015, Igra commenced this action in the name of TRT against Palmer Luckey 15 and Oculus. Immediately following the commencement of this action, Seidl told Luckey via 16 Skype text message, “just seen what Igra filed. Was without my knowledge or permision [sic]. 17 . . . . What he has done seems to be illegal to me. I have not signed anything or let him take 18 action against you” (Exh. M). At his recent deposition, Seidl stated that he did not agree to 19 Igra’s pursuit of this action and that he does not consider TRT’s counsel herein to represent 20 him (Seidl Dep. at 21–22, 28–30). PROCEDURAL HISTORY. 21 Originally, counsel herein advised this Court that the Hawaii litigation (in which Igra 22 alleges Seidl breached various duties by refusing to agree to this lawsuit) would go to trial in 23 May 2016. Based thereon, this Court allowed this action to progress, thinking that the 24 authorization issue would be resolved before an inordinate investment of time was made. But 25 as the May 2016 trial in Hawaii approached, Seidl and Igra stipulated to postpone that trial to 26 December, evidently waiting to see how the instant case turned out, which was then set for trial 27 in September. An order herein in May 2016 then stayed the instant case pending resolution of 28 the Hawaii litigation. 7 1 The order staying the instant case allowed defendants to move for summary judgment 2 on the limited issue of Igra’s authority to bring this action in TRT’s name in light of Seidl’s 3 failure to consent to this action. The stay followed the close of fact discovery during which 4 extensive discovery was taken on the veto issue, including the depositions of both Seidl and 5 Igra. The stay order also permitted the resolution of certain then-pending discovery disputes 6 that bore on the issues relating to this motion. This order follows full briefing and oral 7 argument. 8 ANALYSIS 9 Igra, acting in TRT’s name, argues that the email flurry on January 18–19, 2015, between Seidl and Igra constituted an agreement to commence this action. Igra also argues 11 For the Northern District of California United States District Court 10 that defendants lack standing to challenge Igra’s authority and TRT’s capacity to sue. 12 1. IGRA AND SEIDL DID NOT AGREE. 13 Paragraph 19 of the partnership agreement provided, “for any decision regarding the 14 company Ron Igra and Thomas Seidl have to agree on any action,” subject to certain 15 exceptions not applicable here. The evidence is clear: Seidl did not agree to commence this 16 action and maintains his objection under oath. Contrary to Igra, the email exchange between 17 Seidl and Igra on January 18–19, 2015, following their meeting on January 18 did not override 18 Seidl’s express objection.2 19 Seidl and Igra met on January 18 to discuss the possibility of pursuing this lawsuit 20 against Luckey and Oculus. They then exchanged emails about a plan about which they did 21 not fully agree. Both agreed that they intended to reach out to Palmer Luckey to set up a 22 demonstration of their ongoing video-capture technology to Mark Zuckerberg, the CEO of 23 Facebook (Oculus’s parent company). For his part, Igra insisted that if they did not have an 24 offer from Facebook to acquire TRT within two weeks, they would sue. On the other hand, 25 Seidl resisted Igra’s hard deadline and suggested they would “play it by ear” unless they got 26 27 28 2 Defendants argue that TRT’s evidence of Seidl and Igra’s emails in January 2015 is inadmissible hearsay. Defendants are correct that the email exchange is inadmissible for the purpose of proving what was said at the meeting between Seidl and Igra. (Though the exchange is described as the “minutes” of the meeting, there was no formalized procedure for keeping and approving minutes, so the emails do not constitute business records.) The emails are admissible, however, to prove up the transaction represented by the emails themselves. 8 1 “zero feedback” from Luckey. Seidl also reminded Igra that he had to get an independent 2 assessment of the lawsuit. 3 The email exchange remained subject to certain conditions. First, both partners agreed 4 to reach out to Luckey to try to demonstrate footage from their camera technology at Facebook 5 (preferably to Mark Zuckerberg) in the hopes of negotiating a buy-out of their partnership and 6 their camera technology. The lawsuit would commence if discussions with Luckey produced 7 “no positive signs,” but Seidl intended to revisit the deadline if they got traction with Luckey. 8 Second, Igra needed to get an independent attorney to review the viability of their claims. 9 Although Igra and Seidl dispute whether Igra ever got an independent attorney to review the case (compare Igra Dep. at 281–84 with Exh. R at 2284), the first condition is the 11 For the Northern District of California United States District Court 10 main problem with Igra’s January 18–19 argument. Luckey did respond to Seidl and Igra, and 12 the parties began the process of arranging a demonstration of TRT’s video-capture technology, 13 meaning “positive signs” appeared. The next step stalled because Igra insisted on 14 inflammatory terms in a nondisclosure agreement. Luckey proposed a normal nondisclosure 15 agreement, but Igra refused it. Thus, at least one necessary condition — “no positive signs” — 16 wasn’t met, for there were positive signs. 17 Most significantly, on February 22, in Seidl’s final statement to Igra about this lawsuit 18 before it was filed, Seidl made very clear his objection to this suit: “Again. Do not take any 19 legal action against [P]almer” (Exh. T at 7970). Igra plainly understood, responding: 20 “[u]nfortunately, your refusal to cooperate in making our legal claims against Luckey are [sic] 21 stopping the partnership from getting what is rightfully due” (Exh. U at 3736). This veto was 22 Seidl’s last word to Igra before Igra filed the instant claim. Seidl maintains his objection 23 today. 24 25 This order finds on the undisputed facts that this lawsuit was filed without the mutual authorization required by Paragraph 19. AUTHORITY AND CAPACITY TO SUE. 26 2. 27 Under FRCP 17(b)(3), a plaintiff’s capacity to sue or be sued on state law claims is 28 determined by the law of the forum state. Both sides, therefore, agree that California law 9 1 controls the threshold capacity and authority issues. Both sides also agree that the law of 2 Hawaii — the place of formation for TRT and its home — controls any underlying issues 3 involving the interpretation of the partnership agreement. In other words, the issue of whether 4 Igra alone had authority to cause TRT to sue is controlled by Hawaii law, but the effect of that 5 lack of any authority is controlled by California law. (Both California and Hawaii have 6 enacted the Revised Uniform Partnership Act.) 7 As for internal governance, the Hawaii Uniform Partnership Act of 1999 provides the aside these default rules, however, in a partnership agreement, subject to certain exceptions not 10 relevant here. Haw. Rev. Stat. § 425-103(a). Both sides agree that the partnership agreement, 11 For the Northern District of California default rules for partnerships. Haw. Rev. Stat. §§ 425-101–425-144. A partnership may set 9 United States District Court 8 not the default rules, controls the governance of the partnership between Seidl and Igra. 12 Although Section 425-112 of the Hawaii Revised Statutes provides that a partner has 13 authority to act as an agent of the partnership for the purpose of the business (i.e., without 14 seeking unanimous approval of all partners), Paragraph 19 of the partnership agreement 15 unambiguously set aside that default rule. It stated that either partner had the right to veto, and 16 it expressly defined what that meant: “This means that for any decision regarding the company 17 Ron Igra and Thomas Seidl have to agree on any action . . . .” Without Seidl’s concurrence, 18 therefore, Igra lacked authority to cause TRT to commence or to continue this litigation. 19 This order turns now to the question of the effect of Igra’s lack of authority to 20 commence this action on behalf of TRT, a point both sides agree is controlled by California 21 law. Defendants contend that Igra’s lack of authority deprives TRT of its capacity to sue 22 herein. Igra counters that his authority (or not) is an internal partnership dispute and 23 defendants lack standing to challenge TRT’s capacity on that basis. 24 At common law, a partnership was merely an aggregate of its partners, and an action 25 could only be brought in the names of all partners. Section 369.5 of the California Code of 26 Civil Procedure did away with the common law rule and provided that a partnership had 27 capacity to sue and be sued in “the name it has assumed or by which it is known.” The 28 statutory rule did not, however, vitiate the rule that a partner can only act within the scope of 10 1 his or her authority as allowed by the partnership agreement (or, absent an agreement, as 2 allowed by the default rules of the Uniform Partnership Act). 3 No decision from our court of appeals or from any California appellate court has 4 directly addressed whether a defendant has standing to challenge a partnership’s capacity to 5 sue based on the lack of authority of the partner pursuing the action. Several decisions relating 6 to capacity (which California law controls) in other contexts are instructive. 7 In Pillsbury v. Karmgard, 22 Cal. App. 4th 743 (1994), a beneficiary of a trust 8 commenced an action in his own name on behalf of the trust, contending that a letter sent by 9 the trustee authorized him to commence the action. The defendants challenged the plaintiff’s authority to sue. The plaintiff argued that the defendants lacked standing to challenge his 11 For the Northern District of California United States District Court 10 authority to sue, inasmuch as it was an “internal trust affair.” Id. at 497. The California Court 12 of Appeal rejected that argument and held that the plaintiff lacked standing to sue as a 13 beneficiary without authorization from the trustee. 14 In Anmaco, Inc. v. Bohlken, 13 Cal. App. 4th 891, 898–901 (1993), the California Court 15 of Appeal held that the director of a corporation, also a 50% shareholder, and also its president 16 had no authority to bring a suit in the name of the corporation against the other 50% owner and 17 director. That decision rejected the contention of the director-president-half-owner that as 18 president he had implied authority to cause the corporation to sue in the event of a deadlock 19 among the directors. The court also found the bylaws subjected the president’s authority to the 20 control of the board of directors. That decision particularly noted: 21 22 Pressing the corporation into litigation as a plaintiff is inappropriate where the other shareholder-director could claim equal authority to bring suit in the corporate name. 23 Id. at 900. Thus, Anmaco affirmed the trial court’s decision to dismiss the action in light of the 24 president’s lack of express or implied authority. 25 By analogy, if one partner could unilaterally cause a partnership to sue on a claim, 26 another partner could unilaterally cause a partnership to release and settle the same claim. But 27 that, of course, would be absurd. Those outside the partnership have a legitimate need to be 28 able to know who can act for and bind a partnership. 11 1 In V & P Trading Co., Inc. v. United Charter, LLC, 212 Cal. App. 4th 126, 135–36 2 (2012), the plaintiff was a corporation that had its corporate powers suspended at the time it 3 filed the complaint. The California Court of Appeal held the plaintiff lacked capacity to sue at 4 the time it filed the complaint. It had not revived those powers (and thus regained the capacity 5 to sue) until after the statute of limitations had passed. Thus, the appellate court affirmed the 6 trial court’s decision finding the claims therein time barred. 7 In Estate of Garcia-Vasquez v. County of San Diego, No. 06-1322, 2008 WL 4183913, 8 at *6 (S.D. Cal. Sept. 9, 2008) (Judge Larry Alan Burns), a decedent’s common-law wife 9 (under the law of Mexico) brought claims allegedly on behalf of the estate arising out of the decedent’s fatal shooting against sheriff’s deputies involved in the shooting. The district court 11 For the Northern District of California United States District Court 10 held that the estate itself (as opposed to an executor or administrator) lacked capacity to sue, 12 inasmuch as it was not a legal entity, and that the decedent’s common-law wife lacked 13 authority to sue on his behalf as a personal representative. Accordingly, summary judgment 14 was granted in favor of the defendants. 15 Courts and parties being sued have a legitimate need to determine if a suit has been 16 properly authorized by a plaintiff entity, and inquiry into such authority (or not) is proper. 17 Were this not so, to repeat, one partner could cause a partnership to sue while another partner 18 could cause it to settle and release the very same claim. Courts and parties have a legitimate 19 need to know as well who has authority to settle a case. Here, for example, wouldn’t a 20 settlement require both Igra’s and Seidl’s consent to be reliable? 21 Igra cites Delbon Radiology v. Turlock Diagnostic Center, 839 F. Supp. 1388, 1392 22 (E.D. Cal. 1993) (Chief Judge Robert Everett Coyle), for the proposition that a defendant lacks 23 standing to challenge a partnership’s capacity to sue except to avoid the concern of multiple 24 suits on the same claims (such as by multiple partners). There, as here, the defendants argued 25 that the plaintiff lacked authority to commence a suit on behalf of a partnership under the 26 partnership agreement because one partner objected to the suit, so the remaining partner did 27 “not have the management authority to bring suit.” The partnership agreement in Delbon did 28 not include a veto clause. It merely provided that each partner had an “equal voice” in the 12 1 management of the partnership. The plaintiffs responded that defendants lacked standing to 2 assert the partner’s lack of authority, citing only the following excerpt from Bromberg & 3 Ribstein, Bromberg & Ribstein on Partnership § 5.01(d), at 5:7 (1991) (omissions in Delbon): 4 Third-party defendants are naturally concerned with avoiding liability, but their only properly cognizable concern is avoiding multiple suits on the same claims. This concern is satisfied if the first suit has preclusive effect . . . . Consequently there will be little or no justification for recognizing a third-party defendant’s objection that fewer than all the partners are trying to enforce the partnership’s claim. 5 6 7 adopted this quotation in his case and noted there was no risk of multiple suits because the 10 dissenting partner had been named as a necessary party in the action and would be bound 11 For the Northern District of California The treatise cited no authority. Relying only on Bromberg & Ribstein, Chief Judge Coyle 9 United States District Court 8 by the suit’s outcome, and he had released any claims of liability beyond those asserted in the 12 Delbon action. Thus, Chief Judge Coyle held that “[p]laintiffs’ contention that defendants 13 have no colorable standing to challenge plaintiffs’ authorization is reasonable.” Delbon, 14 839 F. Supp. at 1392. He went further, however, and held that the dissenting partner’s conflict 15 of interest nullified his vote to withhold authorization of the suit, rendering the ruling on the 16 issue of standing superfluous. Id. at 1393. 17 Contrary to Bromberg & Ribstein (which, again, cited no authority), this order holds 18 that even one unauthorized lawsuit is too many. Moreover, the district court has an 19 independent interest in being spared of civil actions that are unauthorized. And, juries should 20 not have to sit through long trials to decide unauthorized civil actions. Thus, a partner may not 21 unilaterally maintain an action in the name of the partnership where the defense demonstrates 22 (and timely asserts), as here, that the partnership agreement deprives him of authority to do so. 23 This holding is not at odds with Delbon. Unlike the dissenting partner in Delbon, Seidl 24 25 has not been named as a party herein and he has not released claims against our defendants. California law allows a single shareholder to bring a derivative action on behalf of a 26 corporation subject to strict demand, adequacy, and procedural rules. The same is true for 27 limited partnerships (which are like corporations but in partnership form, mainly for tax 28 13 1 pass-through reasons). Cal. Corp. Code §§ 800, 15910.02. Significantly, however, derivative 2 actions are not allowed for general partnerships.3 With apologies for repetition, if Igra were deemed authorized unilaterally to assert 3 4 claims on behalf of TRT, then Seidl would have to be deemed authorized unilaterally to release 5 claims on behalf of TRT. As in Anmaco, that result would be untenable. Instead, the 6 partnership must have one authoritative voice. Paragraph 19 of the partnership agreement 7 provided that the authoritative voice was conditioned on Igra and Seidl’s concurrence. 8 Igra argues that defendants lack any rights under the partnership agreement and so 9 cannot avoid liability based on Seidl’s refusal to agree to this suit. Counsel cite numerous decisions supporting the proposition that a third party lacks standing to enforce rights under a 11 For the Northern District of California United States District Court 10 contract, but defendants, to repeat, do not seek to assert rights under the partnership agreement, 12 so Igra’s authorities are inapposite. Defendants instead challenge the capacity and authority of 13 TRT to sue them. Paragraph 19 of the partnership agreement plainly provided, “Ron Igra and Thomas 14 15 Seidl have to agree on any action . . . .” The record is also clear — Seidl did not agree to Igra’s 16 launching this lawsuit. This is fatal. CONCLUSION 17 To the extent stated above and subject to the following conditions, defendants’ motion 18 19 for summary judgment will be GRANTED. Rather than dismissing the action immediately, 20 however, this order will, for the time being, merely maintain the stay and give counsel an 21 opportunity to cure the authorization problem. To that end, the stay previously entered will 22 remain in effect (i) until such time as Ron Igra and Thomas Seidl, the partners of Total Recall 23 Technologies, file a sworn declarations herein affirmatively and without qualification stating 24 that both authorize and agree to the maintenance of this civil action in the name of Total Recall 25 Technologies against Palmer Luckey and Oculus VR, LLC, that both ratify all actions taken 26 herein so far on behalf of Total Recall Technologies, and that both consent to continued 27 3 28 Although it does not apply to the question of capacity, Hawaii law also provides for derivative actions for corporations and limited partnerships but not general partnerships. See Haw. Rev. Stat. §§ 414-171, 425E-1002. 14 1 prosecution of the case by the law firm of Quinn Emanuel Urquhart & Sullivan, LLP, or 2 (ii) until such time as a final order arrives from the Hawaii courts to the same legal effect. 3 The stay will not last indefinitely but will last at least until the end of December to allow the 4 trial in Hawaii to conclude. A further case management conference herein will be held on 5 JANUARY 12, 2017, AT 11:00 A.M. The parties shall file a joint status update no later than 6 SEVEN CALENDAR DAYS 7 prior to the conference. Both counsel shall promptly forward a copy of this order to Seidl’s attorney. 8 9 IT IS SO ORDERED. 11 For the Northern District of California United States District Court 10 Dated: June 16, 2016. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15

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