James R. Johnson v. Steven L. Myers et al

Filing 27

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS by Judge William Alsup [granting 5 Motion to Dismiss[. Amended Pleadings due by NOON on 7/14/2017. (whasec, COURT STAFF) (Filed on 6/30/2017)

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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 JAMES R. JOHNSON, an individual, 11 For the Northern District of California United States District Court 10 Plaintiff, 12 13 14 15 16 17 18 19 20 21 22 23 24 v. No. C 17-02154 WHA STEVEN L. MYERS, an individual dba MYERS ENGINEERING INTERNATIONAL, INC., a business entity believed to be incorporated, STEPHEN A. BURKE, an individual, VORTIS TECHNOLOGY, LTD., a corporation duly organized under the laws of Great Britain, MYERS JOHNSON INC., a California corporation, and DOES 1–50, ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS Defendants. / INTRODUCTION This is a sequel lawsuit to litigation lost by our plaintiff five years ago, recast as a quiet title action. This order holds that the claims asserted may not be resurrected. STATEMENT In January 2011, plaintiff James R. Johnson and eighteen other shareholder plaintiffs 25 filed an action in federal court in San Jose against defendants Steven Myers and Myers 26 Engineering International, Inc. (“MEI”) (see Def.’s RJN, Exhs. 1–3). Johnson v. Myers, 27 No. C-11-00092 WHA (“Johnson I”). That complaint asserted claims for (1) breach of fiduciary 28 duty, (2) misrepresentation and concealment, (3) fraudulent misrepresentation and concealment, 1 (4) negligence, (5) breach of contract, (6) violation of Section 17200 of the California Business 2 and Professions Code, and (7) conversion (Exh. 1). The claims derived from the allegedly 3 fabricated insolvency of Scottish company Vortis Technology, Ltd., which Myers allegedly 4 orchestrated to fraudulently transfer the company’s technology to himself.* 5 Judge Jeremy Fogel held British law applied to all claims except plaintiffs’ breach of 6 contract claim because they were based upon Myers’s activities as director or manager of 7 Vortis and concerned the internal affairs of Vortis. Judge Fogel therefore dismissed those claims 8 without leave to amend because plaintiffs could not bring a derivative claim under British law 9 “[o]nce a company has been dissolved or ceased to exist.” The plaintiffs “were required to seek 11 For the Northern District of California United States District Court 10 remedy . . . through the liquidator during the liquidation proceeding” (Exh. 2 at 16). Judge Fogel also dismissed the breach of contract claim under California law because 12 plaintiffs failed to show that they made the necessary demands to Vortis’s board to take action 13 (id. at 17). The order also concluded that the complaint failed to mention defendant MEI and 14 therefore dismissed it with leave to amend as to MEI for lack of personal jurisdiction. The initial 15 complaint was dismissed with leave to amend regarding the issue of intra-district venue because 16 it was filed in San Jose. It was then reassigned to the undersigned judge. 17 After additional briefing, the undersigned judge found that further amendment of the 18 breach of contract claim would be futile. The plaintiffs did not show that any shareholder made 19 a demand upon Vortis or the liquidators regarding a breach of contract claim as required for a 20 derivative claim on behalf of Vortis. The claim was dismissed without leave to amend (Exh. 3). 21 That occurred in 2012. 22 Fast forward five years. Johnson filed the instant complaint in the Superior Court of 23 California, County of San Mateo (Dkt. No. 1). He again named Myers and MEI as defendants 24 and added Stephen A. Burke, Vortis Technology, Ltd., Myers Johnson, Inc. (“MJI”), and Does 1 25 through 50 as defendants. To the extent comprehensible, the complaint asserts claims for 26 27 28 * Defendants request judicial notice of three records (Dkt. Nos. 1, 26, and 68) from Johnson I. Johnson does not oppose and also makes muddled references to Dkt. Nos. 26 and 68 in his complaint (see No. C 17-02154 WHA, Dkt. No. 1 at 13–15). Defendants’ request is GRANTED. 2 1 (1) declaratory relief, (2) quiet title, and (3) violation of Section 8723 of California’s Corporation 2 Code (see Dkt. No. 1 at 7, 10, 13–14, 16–18). 3 In April 2017, Myers and MEI removed the action to federal court. As of the date of this 4 order, the other defendants have not been served (Dkt. No. 1 at 2). Myers and MEI now move to 5 dismiss the action for failure to state a claim. This order follows full briefing and oral argument. 6 ANALYSIS 7 1. 8 To survive a motion to dismiss, a plaintiff’s claim must plead “enough facts to state a 9 LEGAL STANDARDS. claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim has facial plausibility when the party asserting it pleads factual content that 11 For the Northern District of California United States District Court 10 allows the court to draw the reasonable inference that the defendant is liable for the misconduct 12 alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While the court generally “may not 13 consider any material beyond the pleading,” Hal Roach Studios, Inc. v. Richard Feiner & Co., 14 896 F.2d 1542, 1555 n.19 (9th Cir. 1999), it “may consider material . . . relied upon in the 15 complaint” or “subject to judicial notice.” Ellis v. Phillips & Cohen Assocs., Ltd., 16 No. 5:14-CV-05539-EJD, 2015 WL 4396375, at *2 (N.D. Cal. July 17, 2015) (Judge Edward 17 Davila) (citing Lee v. City of Los Angeles, 250 F.3d 668, 688–90 (9th Cir. 2001)). 18 2. PLAINTIFF’S CLAIMS. 19 First, Johnson clarified during oral arguments that he seeks declaratory judgment that the 20 sale of Vortis’s assets was a voidable, fraudulent transfer. That claim, however, would be barred 21 by issue preclusion. An issue cannot be relitigated when “(1) the issue decided in the prior 22 adjudication is substantially identically to the issue in the subsequent action, (2) there was a final 23 judgment on the merits, and (3) the party against whom estoppel is asserted was a party . . . in the 24 first action.” Durkin v. Shea & Gould, 92 F.3d 1510, 1516 (9th Cir. 1996). The facts alleged by 25 Johnson in support of his claim for declaratory relief also formed the gravamen of the derivative 26 claims in Johnson I (see Exh. 1). There, as here, Johnson accused Myers and Burke of fabricating 27 Vortis’s insolvency in order to fraudulently transfer its assets (Dkt. No. 1 at 14–15). 28 Additionally, as stated, Johnson was a party to Johnson I, which was dismissed without leave to 3 1 amend because Johnson lacked standing to sue on behalf of Vortis. In short, Johnson’s claim for 2 declaratory relief is barred by issue preclusion. 3 Second, Johnson seeks to quiet title under California law with respect to the Vortis Patent No. 6,844,854 (Interferometric Antenna Array) on the basis that he is one of 39 former 6 MJI shareholders and the “founder, developer, author, fund raiser and leader of the invention 7 [’854 patent]” (id. at 7). He does not allege that he is the owner but rather that he has an interest 8 in an entity, MJI, that is the alleged holder. Moreover, counsel for Johnson admitted during oral 9 argument that MJI sold to Vortis, which seemingly contradicts allegations made in the complaint 10 (see Dkt. No. 1 at 3–4). These allegations, however, fail to establish at least one of the essential 11 For the Northern District of California brand/trademark, U.S. Patent No. 6,031,495 (a Low Specific Absorption Rate Patent), and U.S. 5 United States District Court 4 elements of a quiet title action — the basis of the title. See Cal. Civ. Proc. Code § 761.020. 12 The mere fact that Johnson is a former shareholder, founder, and inventor would not establish his 13 personal entitlement to the assets in question. 14 Third, Johnson asserts a claim based on Section 8723 of the California Corporations Code, 15 a statute that authorizes actions against persons who receive the assets of dissolved mutual benefit 16 corporations. The complaint, however, alleges no facts indicating MJI was a mutual benefit 17 corporation subject to Section 8723. The complaint therefore fails to state a facially plausible 18 claim based on Section 8723. 19 CONCLUSION For the foregoing reasons, defendants’ motion to dismiss is GRANTED. By JULY 14 AT 20 21 NOON, plaintiff may move to file an amended complaint. Any such motion shall show cause why 22 plaintiff’s claims are not barred by the applicable statute of limitations and shall include as an 23 exhibit a redlined version of the proposed amended complaint that clearly identifies all changes 24 from the initial complaint. This order has elucidated certain items missing from the initial 25 26 27 28 4 1 complaint. But it will not be enough to add a sentence parroting each missing item identified 2 herein. In the proposed amended complaint, plaintiff must plead his best case. 3 4 IT IS SO ORDERED. 5 6 Dated: June 30, 2017. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 7 8 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5

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