CRS Recovery Inc et al v. Laxton et al

Filing 323

ORDER DENYING 260 DEFENDANT NORTHBAY REAL ESTATE INC.'S MOTION TO DISMISS. Signed by Judge Claudia Wilken on May 4, 2012. (cwlc2, COURT STAFF) (Filed on 5/4/2012)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 5 CRS RECOVERY, INC., a Virginia corporation; and DALE MAYBERRY, 7 8 9 v. JOHN LAXTON, aka; and NORTHBAY REAL ESTATE, INC., Defendants. United States District Court For the Northern District of California 10 11 ORDER DENYING DEFENDANT NORTHBAY REAL ESTATE, INC.’S MOTION TO DISMISS (Docket No. 260) Plaintiffs, 6 No. C 06-7093 CW ________________________________/ Defendant Northbay Real Estate, Inc. moves to dismiss the 12 complaint brought against it by Plaintiffs CRS Recovery Services, 13 Inc. and Dale Mayberry. Plaintiffs oppose Defendant’s motion. 14 For the reasons set forth below, the Court DENIES Defendant’s 15 motion. 16 BACKGROUND 17 On July 23, 1995, Mayberry registered the domain name 18 “” At that time, he also owned the domain name “” 19 Mayberry used the email address “” as the 20 administrative contact when he registered Mayberry last 21 renewed the registration for on July 23, 2002, when he paid 22 in advance for three years so that the registration would expire 23 on July 24, 2005. 24 On December 19, 2003, a new registration of was made 25 by Li Qiang, and Qiang subsequently used his control over the 26 email address to transfer ownership of to 27 himself. 28 1 In May 2005, Laxton purchased from Bernali Kalita, who 2 in the meantime had acquired it from Qiang. 3 to Northbay. Laxton later assigned 4 On July 21, 2005, Mayberry signed two relevant documents. 5 The first was titled “Agreement for Domain Name Transfer,” and the 6 second was attached to the agreement as Exhibit A and titled 7 “Assignment.” 8 3-5. 9 Services, LLC” all rights, title and interest in and to the domain Donaldson Decl. ¶ 2, Ex. A; Lau Decl. ¶ 4, Ex. A, In the latter document, Mayberry assigned “CRS Recovery United States District Court For the Northern District of California 10 name 11 to “CRS Recovery Services, LLC” as the recipient of the rights to 12, the company is referred to as “CRS Recovery Services, 13 Inc.” above the signature line. 14 were executed by Mayberry, but were not signed by anyone on behalf 15 of CRS Recovery Services. Id. 16 Id. While the body of the agreement also referred Id. The agreement and assignment At the time that these documents were executed, neither CRS 17 Recovery Services, Inc. nor CRS Recovery Services, LLC had been 18 formed. 19 CRS Recovery Services, Inc., reached the agreement with Mayberry 20 because he intended to establish CRS Recovery Services in some 21 form shortly thereafter and wanted to obtain the rights to 22 on behalf of it. Lau Decl. ¶ 4. Richard Lau, who is now the President of Id. 23 Almost five months later, on December 13, 2005, Lau and 24 Steven Lieberman incorporated CRS Recovery Services, Inc. in 25 Virginia. 26 entity called CRS Recovery Services, LLC was ever formed. 27 Decl. ¶ 5. Donaldson Decl. ¶ 7, Ex. F; Lau Decl. ¶ 5, Ex. B. 28 2 No Lau 1 On February 27, 2006, Lieberman sent Laxton a demand letter 2 on behalf of Mayberry, stating that, among other things, “it is 3 unequivocal that Mr. Mayberry is the rightful owner of the domain 4 name” 5 Donaldson Reply Decl. ¶ 2, Ex. A. CRS Recovery Services, Inc. and Mayberry filed this action on 6 November 15, 2006, against, among others, Laxton, Northbay and 7 Qiang. 8 second amended complaint (2AC). 9 Plaintiffs allege, “In July, 2005, Mayberry transferred all of his Docket No. 1. On October 30, 2007, Plaintiffs filed their Docket No. 51. In the 2AC, United States District Court For the Northern District of California 10 right, title and interest in RL.Com to CRS for valuable 11 consideration.” 12 Mayberry’s shoes pursuant to a written assignment to recover 13 possession of RL.Com and MAT.Com, and to recover pecuniary damages 14 suffered by Mayberry.” 15 2AC ¶ 16. They also allege that “CRS stands in 2AC ¶¶ 24, 31. In early 2008, CRS Recovery Services, Inc. recovered 16 from Liang and returned it to Mayberry. 17 E; Lau Decl. ¶ 8. Donaldson Decl. ¶ 6, Ex. 18 In February 2008, after had been returned to 19 Mayberry, he and Lau, personally and on behalf of CRS Recovery 20 Services, Inc., signed a document entitled “Confirmation of 21 Contract Performance and Unqualified Assignment of Rights.” 22 Donaldson Decl. ¶ 5, Ex. D; Lau Decl. ¶ 9, Ex. A, 1-2. 23 document, they described the 2005 agreement as a contract between 24 Mayberry and Lau and stated that Lau had subsequently conveyed all 25 rights to recover to CRS Recovery Services, Inc. 26 Decl. ¶ 5, Ex. D; Lau Decl. ¶ 9, Ex. A, 1. 27 agreement, Mayberry again agreed that he conveys to CRS Recovery 28 3 In this Donaldson In the February 2008 1 Services, Inc. irrevocably and without qualification, all rights 2 to the ownership of 3 Id. On June 13, 2008, Plaintiffs filed a motion for leave to file 4 a third amended complaint. 5 stated, “Plaintiff Mayberry should be dismissed from the action, 6 as he has recovered MAT.Net, and seeks no further relief.” 7 3. 8 100. 9 United States District Court For the Northern District of California 10 In the motion, they Plaintiffs later withdrew this motion for leave. Id. at Docket No. CRS Recovery Services, Inc.’s corporate status has since been terminated. Donaldson Decl. ¶ 3, Ex. B. 11 12 Docket No. 76. LEGAL STANDARD Subject matter jurisdiction is a threshold issue which goes 13 to the power of the court to hear the case. 14 matter jurisdiction must exist at the time the action is 15 commenced. 16 Equalization, 858 F.2d 1376, 1380 (9th Cir. 1988). 17 court is presumed to lack subject matter jurisdiction until the 18 contrary affirmatively appears. 19 Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989). Federal subject Morongo Band of Mission Indians v. Cal. State Bd. of A federal Stock W., Inc. v. Confederated 20 Dismissal is appropriate under Rule 12(b)(1) when the 21 district court lacks subject matter jurisdiction over the claim. 22 Fed. R. Civ. P. 12(b)(1). 23 attack the sufficiency of the pleadings to establish federal 24 jurisdiction, or allege an actual lack of jurisdiction which 25 exists despite the formal sufficiency of the complaint. 26 Publ’g Co. v. Gen. Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th 27 Cir. 1979); Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 28 1987). A Rule 12(b)(1) motion may either Thornhill Because challenges to standing implicate a federal court’s 4 1 subject matter jurisdiction under Article III of the United States 2 Constitution, they are properly raised in a motion to dismiss 3 under Rule 4 2000). 12(b)(1). White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 5 DISCUSSION 6 In its motion, Northbay argues that neither Mayberry nor CRS 7 Recovery Services, Inc. had standing at the onset of this case to 8 pursue the claims as to 9 lacked standing because, in 2005, Mayberry assigned his interest Northbay states that Mayberry United States District Court For the Northern District of California 10 in to CRS Recovery Services, LLC. 11 that CRS Recovery Services, Inc. lacked standing, because 12 Mayberry’s 2005 assignment was in favor of the LLC and not the 13 corporation, and because the assignment took place before the 14 corporation was formed. 15 standing to bring the claims related to Northbay also argues Thus, Northbay contends no one has 16 In its reply, Northbay argues instead that the 2005 17 assignment was invalid and that, while Mayberry may have had 18 standing to bring the claims related to at the inception of 19 the lawsuit, he only asserted claims related to 20 The Court finds that Plaintiffs have standing to pursue these 21 claims. 22 through the 2005 agreement and assignment. 23 CRS Recovery Services, Inc. obtained the rights to “Under Virginia law, pre-incorporation actions of de jure 24 corporations are valid and binding on the parties involved.” 25 Hubbard v. Stony Point Land, Inc., 457 B.R. 479, 482 (E.D. Va. 26 2011) (finding a contract signed twenty months before 27 incorporation to be binding, and collecting cases). 28 Virginia does not recognize de facto corporate existence, it does 5 “While 1 allow a de jure corporation to assume the rights and obligations 2 of a contract entered into by promoters prior to the legal 3 existence of the corporation.” 4 Int’l, Inc. v. Enter. for Empowerment Found. at Norfolk State 5 Univ., 68 Va. Cir. 185, at *4 (2005). 6 v. Donald P. & Patricia A. Brennan LLC, 385 F.3d 836, 842 (4th 7 Cir. 2004) (“Virginia law allows an agent or promoter of a 8 business entity to bind the entity to contracts even before the 9 entity is formed.”); Bolling v. General Motors Acceptance Corp., Geographic Network Affiliates- See also T.G. Slater & Son United States District Court For the Northern District of California 10 204 Va. 4, 10 (1963) (although “on the date the contract was 11 signed the corporation had not yet come into legal existence,” the 12 parties were bound because the corporation later did come into 13 existence and continued to abide by the contract). 14 Here, Lau, acting as a promoter for CRS Recovery, Inc., 15 obtained an assignment of rights to 16 contains an immaterial error regarding the form of the company, 17 the documents transfer the rights for to CRS Recovery 18 Services in some corporate form and impose obligations on that 19 entity. 20 abided by its obligations in attempting to recover both domain 21 names, including by filing the instant action. 22 2005 assignment transferred rights in to CRS Recovery 23 Services, Inc. prior to the inception of this suit. 24 While the agreement The corporation did later come into existence and it Accordingly, the Further, even if the 2005 transfer were ineffective, Mayberry 25 had standing when the action was filed, and he subsequently 26 transferred rights to CRS Recovery Services, Inc. in the 2008 27 confirmation and agreement. 28 action may be continued by or against the original party unless “If an interest is transferred, the 6 1 the court, on motion, orders the transferee to be substituted in 2 the action or joined with the original party.” 3 Civil Procedure 25(c). 4 already joined as a party, the Court need not consider whether it 5 should be substituted or joined here. 6 Federal Rule of Because CRS Recovery Services, Inc. is In addition, while Northbay argues that the operative 7 complaint makes clear that Mayberry brings claims only as to 8, the complaint is susceptible to a broader construction. 9 In the prayer for relief, Plaintiffs specify that the United States District Court For the Northern District of California 10 domain name should be transferred to Mayberry, but they pray that 11 the domain name be transferred to “plaintiff,” a more 12 encompassing descriptor. 13 allege that Mayberry was injured by the loss of both domain names 14 and that CRS Recovery Services, Inc. “stands in Mayberry’s shoes 15 pursuant to a written agreement to recover possession” of both 16 domain names. 17 would remove Mayberry as a named plaintiff, they did so with the 18 understanding that CRS Recovery Services, Inc. would be able to 19 pursue the claims that it gained through assignment from Mayberry. 20 In the body of the complaint, Plaintiffs Further, while Plaintiffs have stated that they To the extent that Northbay argues that CRS Recovery 21 Services, Inc. cannot prosecute this action because its corporate 22 status has been terminated, this is unavailing. 23 law provides, “The termination of corporate existence shall not 24 take away or impair any remedy available to or against the 25 corporation . . . for any right or claim existing or any liability 26 incurred, prior to such termination,” and that such actions “may 27 be prosecuted or defended by the corporation in its corporate 28 name.” Virginia Code Ann. § 13.1-755. 7 Virginia state There is no evidence in 1 the record to suggest that CRS Recovery Services, Inc.’s claim 2 arose after the termination of its corporate status. 3 4 5 6 CONCLUSION For the reasons set forth above, the Court DENIES Defendant Northbay’s motion to dismiss (Docket No. 260). IT IS SO ORDERED. 7 8 9 Dated: May 4, 2012 CLAUDIA WILKEN United States District Judge United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8

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