Interserve, Inc. et al v. Fusion Garage PTE. LTD

Filing 139

Transcript of Proceedings held on 5-13-10, before Judge Richard Seeborg. Court Reporter/Transcriber Katherine Wyatt, Telephone number 925-212-5224. Per General Order No. 59 and Judicial Conference policy, this transcript may be viewed only at the Clerks Office public terminal or may be purchased through the Court Reporter/Transcriber until the deadline for the Release of Transcript Restriction.After that date it may be obtained through PACER. Any Notice of Intent to Request Redaction, if required, is due no later than 5 business days from date of this filing. Release of Transcript Restriction set for 8/16/2010. (kpw, COURT STAFF) (Filed on 5/17/2010)

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PAGES 1 - 43 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA BEFORE THE HONORABLE RICHARD SEEBORG, JUDGE INTERSERVE, INC. DBA TECHCRUNCH, A DELAWARE CORPORATION, AND CRUNCHPAD, INC., A DELAWARE CORPORATION, PLAINTIFFS, VS. FUSION GARAGE PTE LTD., A SINGAPORE COMPANY, DEFENDANT. ___________________________________ SAN FRANCISCO, CALIFORNIA THURSDAY MAY 13, 2010 2:00 O'CLOCK P.M. NO. C 09-5812 RS TRANSCRIPT OF PROCEEDINGS APPEARANCES: FOR PLAINTIFFS: WINSTON & STRAWN 101 CALIFORNIA STREET 39TH FLOOR SAN FRANCISCO, CALIFORNIA 94111-5802 ANDREW P. BRIDGES, ESQUIRE MATTHEW A. SCHERB, ESQUIRE BY: FOR DEFENDANT: QUINN EMANUEL URQUHART OLIVER & HEDGES LLP 555 TWIN DOLPHIN DRIVE, 5TH FLOOR REDWOOD SHORES, CALIFORNIA 94065 BY: CLAUDE M. STERN, ESQUIRE EVETTE D. PENNYPACKER, ATTORNEY AT LAW REPORTED BY: KATHERINE WYATT, CSR 9866, RMR, RPR OFFICIAL REPORTER - US DISTRICT COURT COMPUTERIZED TRANSCRIPTION BY ECLIPSE KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE CLERK: PROCEEDINGS CALLING CIVIL CASE NUMBER 09-5812, MAY 13, 2010 2:00 O'CLOCK P.M. INTERSERVE, INC. VERSUS FUSION GARAGE. PLEASE COME FORWARD, AND STATE YOUR APPEARANCE FOR THE RECORD. MR. BRIDGES: GOOD AFTERNOON, YOUR HONOR. ANDREW BRIDGES AND MATTHEW SCHERB FROM WINSTON & STRAWN FOR THE PLAINTIFFS. MR. STERN: AND GOOD AFTERNOON, YOUR HONOR. CLAUDE STERN AND EVETTE PENNYPACKER OF QUINN EMANUEL ON BEHALF OF THE DEFENDANT, FUSION GARAGE. YOUR HONOR, WE HAVE A VARIETY OF ELECTRONIC GIZMOS TO SET UP, AND I DON'T WANT TO DELAY YOUR SCHEDULE. IT WILL PROBABLY TAKE US SEVERAL MINUTES JUST TO MAKE SURE THAT EVERYTHING IS CALIBRATED. THE COURT: WELL, WHY DON'T I GO AHEAD AND GIVE YOU AND THEN, THAT MAY HAVE AN SOME OF MY PRELIMINARY COMMENTS? IMPACT ON WHETHER OR NOT YOU WANT THE WHOLE SOUND AND LIGHT TO BE PROVIDED. SO OKAY. LET ME JUST GO OVER WHAT SOME OF MY PRELIMINARY IMPRESSIONS HAVING READ THROUGH YOUR PAPERS, BOTH WITH RESPECT TO THE MOTION FOR PRELIMINARY INJUNCTION AND THEN THE MOTION TO DISMISS. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 IF YOU WANT THEN WE CAN TAKE A BRIEF BREAK. AND IF THERE IS GOING TO BE SOME AUDIO VISUAL PROVIDED TO ME, YOU CAN SET IT UP. ALL RIGHT. LET ME FIRST ADDRESS THE MOTION FOR PRELIMINARY INJUNCTION THAT PLAINTIFFS HAVE PRESENTED. AND AS I UNDERSTAND IT, THE PLAINTIFF IS SEEKING AN INJUNCTION IN ORDER TO IMPOSE A CONSTRUCTIVE TRUST ON THE REVENUES FROM THE SALE OF THIS DEVICE, THE JOOJOO DEVICE. IT DOES APPEAR TO ME THAT WITH RESPECT TO THE LIKELIHOOD-OF-SUCCESS-ON-THE-MERITS PRONG OF THE TEST, WHICH WE'RE ALL FAMILIAR WITH, THAT THE PLAINTIFF DOES MAKE A SHOWING WITH RESPECT TO SOME OF ITS CLAIMS ON LIKELIHOOD OF SUCCESS ON THE MERITS. AND I WILL DISCUSS THIS IN A LITTLE MORE DETAIL AS I GO THROUGH THIS. I THINK THE RECORD DOES REFLECT THAT THE PARTIES DID ENTER INTO A JOINT VENTURE, ALBEIT WITH VARIOUS TERMS STILL TO BE DETERMINED. BUT I THINK THE EVIDENCE THAT I HAVE SEEN DOES INDICATE THAT IT WENT BEYOND THE NEGOTIATION PROCESS AND REFLECTED COLLABORATIVE EFFORTS ON A PROJECT THAT I THINK DO RISE TO THE LEVEL OF A JOINT VENTURE. AND THE VERY FACT THAT AT A CERTAIN POINT IN TIME THERE'S A DISCUSSION OF HOW THE PARTIES NEED TO REACH A DIVORCE I THINK DOES, AS PLAINTIFFS SUGGEST, INDICATE THAT THERE WAS SOMETHING BEYOND AN AGREEMENT TO DISCUSS GOING ON. SO AS TO, IN PARTICULAR, THE BREACH OF FIDUCIARY DUTY KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CLAIM AND THE FRAUD CLAIM, I THINK THAT FIRST PRONG, AT LEAST IN MY INITIAL READING, SEEMS TO BE SATISFIED. I AM NOT CONVINCED, HOWEVER, THAT PLAINTIFFS HAVE MADE A SHOWING OF IRREPARABLE INJURY. I DON'T THINK THEY HAVE SHOWN THAT THEY WOULD BE UNABLE TO OBTAIN AN ENFORCEABLE JUDGMENT FOR DAMAGES IN THE EVENT THAT THEY WERE TO PREVAIL. THE SIMPLE FACT THAT FUSION IS A FOREIGN ENTITY, IT HAS FUNDS OFFSHORE, THAT'S NOT ENOUGH. PLAINTIFF CLAIMS AN ENTITLEMENT TO A SHARE OF THE PROFITS, BUT THERE ISN'T ANY RES, IF YOU WILL, TO BE FROZEN HERE AT THIS POINT. THERE'S SOME INDICATION THAT THERE'S SOME PRODUCT REVENUE, NOT ALL OF WHICH WOULD BE EVEN UNDER PLAINTIFFS' THEORY, SOMETHING THAT PLAINTIFF WOULD NECESSARILY BE ENTITLED TO. AND I'M ALSO AWARE THAT TO FREEZE THE REVENUE HERE WOULD CARRY THE POTENTIAL OF SHUTTING DOWN THE FUSION'S ABILITY TO DO BUSINESS. AND I DON'T THINK THAT A SIMILAR HARDSHIP WOULD BE IMPOSED UPON THE PLAINTIFFS. SO, ACCORDINGLY, MY INITIAL INCLINATION AT THIS POINT IS TO DENY THE MOTION FOR PRELIMINARY INJUNCTION ON THIS RECORD ON THE FAILURE TO MAKE AN ADEQUATE IRREPARABLE HARM SHOWING. BEFORE I GO INTO MY PRELIMINARY COMMENTS ON THE MOTION TO DISMISS, LET ME DIGRESS FOR A MOMENT ABOUT THE FILINGS I HAVE RECEIVED AND, IN PARTICULAR, THE FILINGS I HAVE KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SAYING: "LET'S PLAY THE OTHER PARTY ALONG," OR, YOU KNOW, WHETHER OR NOT E-MAILS WERE FABRICATED IN TERMS OF THEIR ORIGIN, THINGS LIKE THAT, THAT'S NOT MATERIAL THAT GETS FILED UNDER SEAL. IT'S NOT CONFIDENTIAL. IT'S NOT PROPRIETARY. IT RECEIVED UNDER SEAL. I KNOW THERE WERE A FLURRY JUST IN THE LAST TWO DAYS OF BACK AND FORTH LAST MINUTE EVIDENTIARY MATERIAL THAT HAS BEEN PRESENTED. AND I'M NOT ACTUALLY -- THESE COMMENTS ARE NOT SPECIFICALLY DIRECTED TO THAT WAVE, BUT IN TERMS OF THE FIRST WAVE OF MATERIALS THAT I SAW, I THINK THERE'S NOTHING THAT QUALIFIED FOR UNDER SEAL FILING. INFORMATION SUCH AS WHETHER OR NOT ONE PARTY IS MAY BE EMBARRASSING, BUT MY CONCERN IS THAT THERE'S GROSS OVERDESIGNATION THAT I ALREADY SEE IN THIS CASE. SO AT THE VERY LEAST IN TERMS OF WHAT HAS BEEN SUBMITTED TO ME PARTIES ARE GOING TO GO BACK AND SCALE DOWN THE REQUEST TO SEAL. THERE MAY BE -- AND I KNOW IN THE MOST RECENT WAVE OF MATERIALS THERE WAS SOME REVENUE DISCUSSION AND CERTAINLY IF THERE WERE, YOU KNOW, BUSINESS PLANS GOING FORWARD, THAT'S THE KIND OF MATERIAL THAT ARGUABLY CAN BE SEALED. BUT THE AMOUNT OF STUFF THAT WAS SEALED -- PROPOSED TO BE SEALED WAS JUST WAY BEYOND THE PALE, IN MY VIEW. SO LET ME TALK A LITTLE ABOUT THE MOTION TO DISMISS. TO MAKE A LONG STORY SHORT, ON THE FIVE CLAIMS THAT ARE PRESENTED IN THE COMPLAINT -- AND THIS IS THE DEFENDANT'S MOTION KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE GAME. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 TO DISMISS -- I'M INCLINED TO GRANT THE MOTION TO DISMISS BUT WITH LEAVE TO AMEND WITH RESPECT TO SEVERAL OF THESE CLAIMS. FIRST OF ALL, WITH RESPECT TO THE LANHAM ACT CLAIM, THE FIRST CLAIM FOR RELIEF, FALSE ADVERTISING, I DO HAVE SOME SIGNIFICANT QUESTION ABOUT WHETHER OR NOT PLAINTIFFS CAN PLEAD THE REQUISITE COMPETITIVE INJURY IN THIS CASE. ARGUMENT IS WELL-TAKEN. I'M SKEPTICAL YOU CAN BE A CONCEIVABLE COMPETITOR, WHICH SEEMS TO BE WHAT PLAINTIFF IS SUGGESTING. THAT, YOU KNOW, I THINK THAT THE PLAN WILL BE BECAUSE THE JOINT VENTURE DOESN'T WORK WE'RE GOING TO COMPETE WITH YOU IN THE FUTURE. I DON'T THINK THAT THAT IS ENOUGH. BUT I WOULD BE INCLINED TO LET THE PLAINTIFF SEE IF THEY CAN DEVELOP THAT THEORY INTO SOME VIABLE FORM. THE BREACH OF FIDUCIARY DUTY CLAIM AS I NOTED IN THE CONTEXT OF THE PRELIMINARY INJUNCTION DISCUSSION, I THINK THAT THERE IS A CLAIM THAT HAS BEEN PRESENTED OF A BREACH OF A JOINT VENTURE. AND I THINK THAT THERE MAY BE SOME CLEANUP REQUIRED, AS POINTED OUT IN DEFENDANT'S MOTION PAPERS IN TERMS OF BEING QUITE SPECIFIC AS TO WHICH ENTITIES ARE INVOLVED AND ALONG THOSE LINES, BUT I THINK THAT'S MORE IN THE NATURE OF SOME PERFECTING OF THE CLAIM. I THINK THE CLAIM IS A VIABLE ONE AT THIS STAGE OF 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE MISAPPROPRIATION OF BUSINESS IDEAS, I TEND TO THINK THAT THE DEFENDANTS ARE RIGHT ABOUT THAT CLAIM. I DON'T THINK THAT THERE IS A VIABLE CLAIM THERE. THE TWO CASES THAT SEEM TO BE CITED, THE DESNY CASE, WHICH IS A CONTRACT, IMPLIED CONTRACT CONCEPT, AND THE HOLLYWOOD CASE, WHICH GOES MORE ALONG TORT LINES, I DON'T THINK EITHER OF THOSE CLAIMS SUPPORT THE NOTION THAT IN THIS INSTANCE THERE IS SUCH A THING AS AN AVAILABLE CLAIM FOR MISAPPROPRIATION OF BUSINESS IDEAS. I KNOW THAT PLAINTIFF SAYS: "WE'RE NOT TALKING ABOUT TRADE SECRETS. TALKING ABOUT SOMETHING VERY DIFFERENT. WE'RE IF THEY WERE TALKING ABOUT TRADE SECRETS, THEY WOULD HAVE THE POTENTIAL PREEMPTION PROBLEM." BUT THE BOTTOM LINE IS I JUST DON'T THINK THERE'S A CLAIM THERE, AND I'M INCLINED TO DISMISS THAT WITHOUT LEAVE TO AMEND. THE FRAUD CLAIM, I THINK THE FRAUD CLAIM MAY WELL BE A VIABLE CLAIM. I AM NOT, HOWEVER, SATISFIED THAT NINE -- I THINK 9 (B) APPLIES, AND I'M NOT COMFORTABLE THAT THERE'S BEEN A SUFFICIENT AMOUNT OF SPECIFICITY, PARTICULARITY ON THE FOURTH CLAIM, FROM ALL THE MATERIALS THAT HAVE BEEN FLYING BY ME WITH RESPECT TO THE PAPERS THAT HAVE BEEN SUBMITTED. I SUSPECT THAT THAT THAT -- THERE MAY BE MATERIAL THERE THAT WILL PROVIDE THE PLAINTIFF WITH A SUFFICIENT BASIS TO PROCEED WITH A 9 (B) OBLIGATION, SO I'M INCLINED TO DISMISS THAT WITH LEAVE TO AMEND. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE 17200 AND 17500 CLAIMS, 17200, AMONGST OTHER THINGS, REQUIRES SOME UNDERLYING WRONG. I'M ASSUMING THAT, AS IS SUGGESTED IN THE COMPLAINT, THAT THE UNDERLYING WRONG WOULD BE THE FRAUD. IF LEAVE TO AMEND IS GRANTED, AND THE PLEADING SATISFIES 9 (B), THEN PRESUMABLY WOULD BE THE BASIS FOR THE 17200 CLAIM. THE 17500 CLAIM, THE STATE FALSE ADVERTISING CLAIM, I THINK THAT HAS SOME OF THE SAME PROBLEMS THAT THE LANHAM ACT CLAIM HAS. AND SO I'M, AGAIN, SKEPTICAL THAT THERE'S GOING TO BE -- THERE'S, IN THIS INSTANCE, I'D CHARACTERIZE IT AS A STANDING PROBLEM, BUT A PROBLEM WITH RESPECT TO BEING ABLE TO SHOW INJURY, IN FACT. SO THOSE ARE MY PRELIMINARY COMMENTS WITH RESPECT TO THESE MOTIONS. IF YOU WANT, MR. STERN, YOU WANT A MOMENT TO GET SET UP? IS THAT WHAT YOUR -MR. STERN: YOUR HONOR, THERE ARE A COUPLE SLIDES THAT I WOULD LIKE TO SHOW YOUR HONOR, IF I MAY. THE COURT: MR. STERN: ALL RIGHT. FINE. ALTHOUGH, OBVIOUSLY, I KNOW IT'S BEST BUT MY BIGGEST SOMETIMES TO SIT DOWN AND NOT DO ANYTHING. PROBLEM IS I DO NOT KNOW WHAT COUNSEL IS GOING TO SAY, AND I DON'T WANT TO THEN START PUTTING ALL THE MACHINERY TOGETHER. SO PERHAPS I CAN JUST HOOK IT ALL UP THERE, AND WE WILL SEE WHERE WE GO. THE COURT: THAT'S FINE WITH ME. THAT'S FINE. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BRIDGES, I ASSUME YOU DON'T HAVE A PROBLEM WITH THEIR HOOKING UP THEIR EQUIPMENT. MR. BRIDGES: NOT AT ALL, YOUR HONOR. I WOULD LIKE TO SAY A FEW THINGS IN RESPONSE TO YOUR INITIAL OBSERVATIONS. THE COURT: OH, I'M SURE. BUT WHAT I'M SUGGESTING IS SO THAT WE DON'T HAVE TO DISRUPT IT, IF HE CAN GET ALL -WHOEVER WANTS TO SET UP WHATEVER THEY WANT TO SET UP SO THAT THEN WHEN I COME BACK WE CAN HAVE THE ARGUMENT RATHER THAN HAVE YOU START, TAKE A BREAK, HAVE HIM SET UP MATERIALS. THAT'S KIND OF HOW I'M SUGGESTING WE PROCEED. MR. BRIDGES: WELL, ONE POSSIBILITY IS HE COULD HEAR WHAT I HAVE TO SAY, AND THEN DECIDE. THE COURT: WE COULD DO IT THAT WAY. GO AHEAD. OKAY, MR. BRIDGES. MR. BRIDGES: THANK YOU, YOUR HONOR. I'LL ZERO IN ON JUST A FEW POINTS, BECAUSE WE'VE GIVEN YOU A LOT TO READ AND IT'S OBVIOUS YOU'VE GOTTEN THROUGH IT. FIRST, ON THE MOTION TO DISMISS, THE MISAPPROPRIATION TORT IS REAL. AND I THINK THAT IN THE PAPERS THERE'S A CASE WE DIDN'T DISCUSS IT AS THAT I WOULD ASK THE COURT TO FOCUS ON. MUCH IN THE PAPERS AS PERHAPS WE SHOULD HAVE. IT'S THE CITY SPORTS CASE. THERE WERE THREE DIFFERENT CITY SPORTS DECISIONS. NINTH CIRCUIT DECISION. THIS IS A CASE THAT THE DEFENDANT CITED FOR SOME KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 THE IMPORTANT ONE TO FOCUS ON IS THE 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 OTHER REASONS. BUT THAT CASE UPHELD -- IN THE NINTH CIRCUIT UPHELD THE EXACT KIND OF MISAPPROPRIATION TORT THAT WE ARE TALKING ABOUT. AND LET ME SEE IF I CAN GET THE -THE COURT: MISAPPROPRIATED? MR. BRIDGES: THE COURT: WELL, IN THE CITY SOLUTIONS CASE -WHAT ARE THE IDEAS THAT WERE I'M ASKING IN THIS CASE. RIGHT. IF I COULD JUST GIVE THAT CASE MR. BRIDGES: BY WAY OF -THE COURT: ALL RIGHT. WHAT HAPPENED WAS THAT WAS A CASE MR. BRIDGES: WHERE SOME PARTIES GOT TOGETHER TO MAKE INITIAL EFFORTS TO PREPARE A BID TO PLACE NEWS RACKS IN THE CITY OF SAN FRANCISCO. THE NEWS RACKS WOULD BE FOR FREE. THE CITY WOULD GIVE THEM PLACES TO PUT THEM. THEY COULD BEAR ADVERTISING AND THE LIKE. AND THEY ENDED UP NOT DOING THE DEAL. ONE CUT THE OTHER OUT RIGHT AT THE END. AND THAT CASE ENDED UP GOING FOR THE DEFENDANT ON THE GROUNDS THAT IT WAS NOT A JOINT VENTURE BECAUSE IT WAS REALLY JUST PROPOSING A TRANSACTION. IT WAS NOT AN ONGOING OPERATION OF A BUSINESS. THEY WERE COMING TOGETHER TO TRY TO PROPOSE A BID, AND THEN THEY ENDED UP NOT BIDDING TOGETHER. THE COURT OF APPEALS FOUND THERE THAT A COUPLE OF INGREDIENTS OF THE BID WERE THE IDEAS THAT WERE MISAPPROPRIATED. IN OTHER WORDS, TWO OR THREE ELEMENTS LIKE MAYBE THERE WOULD BE KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SAY THAT. ADVERTISING ON ONLY FIFTY PERCENT OF THE BOXES OR SOMETHING LIKE THAT, OR THAT THERE WOULD NOT BE A REVENUE SHARE, STRUCTURING THE BID IN THAT WAY. THE CONTRIBUTION OF THOSE IDEAS WERE CONSIDERED THE PROPERTY THAT WAS MISAPPROPRIATED. AND THE NINTH CIRCUIT ALLOWED THAT CLAIM TO PROCEED. THE COURT: I'M NOT SUGGESTING THAT THE CASE DOESN'T BUT THE WHOLE NOTION, I'LL GO BACK AND LOOK AT IT. OF COURSE, OF IDEAS, WE'RE SO FAMILIAR WITH THE IDEA THAT THE IDEAS ARE NOT PROTECTABLE IN THE COPYRIGHT CONTEXT AND OTHER -YOU KNOW, YOU CAN'T PROTECT AN IDEA. YOU CAN PROTECT HOW THE IDEA IS PRESENTED OR PERFORMED OR WHAT HAVE YOU. SO THIS NOTION OF IDEAS SEPARATE AND APART FROM TRADE SECRETS, SEPARATE AND APART FROM COPYRIGHTABLE MATERIAL OR OTHER INTELLECTUAL PROPERTY IS SOMEWHAT A DIFFERENT NOTION. MR. BRIDGES: THOSE OF US WHO PRACTICE A LOT OF BUT WHAT PATENT AND COPYRIGHT LAW CERTAINLY HAVE THAT INSTINCT. IS INTERESTING IS IF YOU LOOK AT THE CALIFORNIA SUPREME COURT'S CASE ON AN INSURANCE CONTEXT, THE LEBOX (PHONETIC) CASE, POINTED OUT THAT EVERY SINGLE COMMERCIAL GENERAL LIABILITY INSURANCE POLICY HAS AS ONE OF ITS ADVERTISING INJURIES THE MISAPPROPRIATION OF ADVERTISING IDEAS OR STYLE OF DOING BUSINESS. THAT'S THE STANDARD INSURANCE BOILERPLATE. LEBOX CASE SAID: KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 AND THE 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 "WELL, THAT LANGUAGE EXTENDS TO INCLUDE TRADEMARK INFRINGEMENT." THAT WAS THE PURPOSE OF THAT. BUT THE BOTTOM LINE IS MISAPPROPRIATION OF ADVERTISING IDEAS OR STYLE OF DOING BUSINESS HAS, INDEED, BEEN RECOGNIZED AS A TORT CONCRETE ENOUGH TO BE SUBJECT TO A VERY PARTICULAR PHRASE IN VIRTUALLY EVERY INSURANCE CONTRACT IN THE COUNTRY. AND SO THAT'S NOT SO ALIEN IF YOU STEP INTO THE INSURANCE WORLD AND OUT OF THE PATENT COPYRIGHT WORLD. SO IT'S OUT THERE. AND I DO COMMEND THE NINTH CIRCUIT'S DECISION IN THE CITY SPORTS CASE. SO THAT'S THE MAIN THING I WOULD LIKE -- AND IF THE COURT IS INCLINED TO GRANT THE MOTION TO DISMISS THAT, I WOULD URGE THE COURT TO GRANT LEAVE TO AMEND SO THAT WE COULD TIE IT TO THE CITY SPORTS CASE MORE TIGHTLY. BUT HAVING NO LEAVE TO AMEND THERE I THINK WOULD BE A REAL PREJUDICE. THE OTHER POINT I WANT TO MAKE ON THE PRELIMINARY INJUNCTION MOTION HAS TO DO WITH IRREPARABLE HARM. AND I'M FAMILIAR WITH -- I THINK THERE WAS A SEPARATE JURISDICTIONAL CONCERN THAT THE COURT HAD, I THINK, BACK IN FEBRUARY. KOKKA, K-O-K-K-A. I DON'T KNOW HOW IT'S PRONOUNCED. IT WAS I DON'T THINK WE HAVE THAT ISSUE HERE BECAUSE THAT WAS SORT OF A QUESTION WHETHER THE COURT HAD JURISDICTION. HERE WE HAVE CAUSES OF ACTION FOR WHICH STATE LAW KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CLEARLY PROVIDES CONSTRUCTIVE TRUST. THERE'S SUBSTANTIVE STATE LAW THAT SAYS THE PROCEEDS WOULD BE A TRUST, SO I DON'T THINK THAT WE HAVE THAT JURISDICTIONAL ISSUE HERE. BUT ON IRREPARABLE HARM, THE FACT OF THE MATTER IS -THE COURT: WELL, LET ME JUST STOP YOU ON THAT QUESTION, AND NOT FOCUSING PARTICULARLY ON THE ISSUE THAT I HAD TO ADDRESS IN THAT CASE. JUST FOCUSING HERE, EVEN IF, AS I UNDERSTAND IT, YOUR CHARACTERIZATION OF WHAT THIS JOINT VENTURE PROVIDED WAS THAT YOU WERE GOING TO BE ABLE TO HAVE A SHARE OF THE PROFITS, CORRECT? MR. BRIDGES: THE COURT: YES, YOUR HONOR. AND YOU'RE SAYING THAT SO FAR CERTAIN REVENUE HAS BEEN GENERATED FROM THE SALE OF THESE DEVICES, AND THAT YOU WANT A CONSTRUCTIVE TRUST PLACED OVER THIS REVENUE BECAUSE SOMEWHERE WITHIN THIS REVENUE WILL BE SOME PORTION OF PROFITS SOMEDAY WHEN YOU CALCULATE WHAT PROFITS HAVE BEEN DERIVED, AND YOU GET A PIECE OF THAT. CAN BE PLACED IN A CONSTRUCTIVE TRUST. MR. BRIDGES: THE COURT: THAT'S PART OF IT. THEREFORE, THE REVENUES OKAY. THERE'S MORE TO IT. MR. BRIDGES: THE COURT: WHAT HAVE I LEFT OUT? IN THE NORMAL COURSE, IF THIS HAD MR. BRIDGES: SUCCEEDED AND GONE FORWARD THERE WOULD HAVE BEEN AN ENTITLEMENT TO THE UNDIVIDED SHARE OF THE PROCEEDS OF THE WHOLE COMPANY KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WORLDWIDE BASED ON THIS. IT HAPPENS THAT THERE'S ONLY SO MUCH MONEY BEING GENERATED IN THE UNITED STATES. THERE'S BEEN A RECENT SPLASH THAT THE DEFENDANT IS NOW SELLING IN CANADA AND IN EUROPE AND ELSEWHERE. THAT MONEY WILL NEVER BE ANYWHERE CLOSE TO WHERE THIS COURT CAN REACH IT. THE COURT: WELL, BUT YOU CAN GET A JUDGMENT IN A COURT, AND THEN SEEK TO HAVE IT ENFORCED THROUGH THE PROPER PROCESS. AND I'M NOT SAYING IT'S EASY, BUT CERTAINLY IN THE JURISDICTIONS YOU MENTION I SUSPECT YOU COULD TRY TO GO TO CANADA AND GET A U.S. JUDGMENT ENFORCED IN THE APPROPRIATE CIRCUMSTANCES. MR. BRIDGES: AND I SUSPECT THAT SINCE FUSION GARAGE, WHICH, BY THE WAY, LAUNCHED ITS PRODUCT WITH A BIG EVENT HERE IN SAN FRANCISCO, WHICH LAUNCHED ITS PRODUCT ONLY IN THE UNITED STATES HAS ENGINEERED THAT SO THAT THE UNITED STATES DOESN'T TOUCH THE MONEY ANYMORE. THIS IS A COMPANY THAT WAS ORIGINALLY U.S. FOCUSSED, U.S. CENTERED, EXCEPT IT HAD A PAYPAL ACCOUNT THAT IT STILL HASN'T GOTTEN MONEY FROM, AND IT IS CONCERNED BECAUSE PAYPAL FOR ITS OWN FRAUD PROTECTIONS IS HOLDING ONTO THE MONEY. SO IT'S NOW MADE SURE THAT IT'S NOT GETTING ANY FUNDS IN THE UNITED STATES, EVEN THOUGH THE UNITED STATES WAS THE FOCUS OF ITS -THE COURT: THERE'S SOME COMPETITIVE REASONS WHY THEY HAVE TO MAKE SOME ADJUSTMENTS ON THAT; THAT IT'S NOT SIMPLY -CAN I SIMPLY ASSUME THAT IT'S BECAUSE YOU ARE OUT THERE, AND KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THEY WANT TO NOW, YOU KNOW, GET OUT FROM UNDER THE PROSPECT THAT YOU CAN COME AFTER THEM? I MEAN, THERE MAY BE SOME REASONS WHY THEY HAVE DECIDED THE U.S. MARKETPLACE IS MORE PROBLEMATIC FOR THEM. MR. BRIDGES: WELL, THEY SAID THAT THEY WERE IN THE AND THEY SPECIFICALLY LEFT PAYPAL U.S. MARKETPLACE WITH PAYPAL. BECAUSE OF THE RESTRICTIONS THAT IT IMPOSES ON ACCOUNTS THAT SHOW THIS KIND OF ACTIVITY. NO, AND IF YOU LOOK AT THE CHARACTER OF THE DEFENDANT'S CONDUCT THROUGHOUT, IT WOULD BE CONSISTENT. I MEAN, THEY PAID -- YOU KNOW, THEY PAID THEIR PUBLIC RELATIONS AGENCY HERE CASH IN ADVANCE. THAT'S WHAT THE DOCUMENTS SHOW. THE COURT: LET ME FOCUS YOU ON THIS NOTION OF THE SHOWING YOU MUST MAKE. YOUR ARGUMENT THAT BECAUSE THE DEFENDANTS ARE OUTSIDE OF OUR JURISDICTION YOU NEED TO HAVE SOME COMFORT THAT YOU CAN ENFORCE ANY JUDGMENT THAT YOU MIGHT OBTAIN. AND, THEREFORE, ON INJUNCTIVE RELIEF BASIS YOU NEED TO HAVE THIS CONSTRUCTIVE TRUST IMPOSED. AREN'T YOU OBLIGED TO DO SOMETHING MORE THAN SAY: "THE FUNDS OF THIS ENTITY ARE, IN LARGE PART, OUTSIDE THIS COUNTRY"? I MEAN, LITIGATION GOES ON ALL THE TIME WITH INTERNATIONAL ENTITIES, SO IT CAN'T BE THAT EASY. MR. BRIDGES: THAT'S CORRECT, YOUR HONOR. THE OTHER PART OF IT -- I MEAN, BUT WE DO BELIEVE THAT THAT IS A KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SIGNIFICANT PART OF IT, BECAUSE WE DO BELIEVE THAT THE PAYMENT FLOW IS SPECIFICALLY BEING SHAPED TO BE OUTSIDE THE COUNTRY, OKAY? BUT THERE IS ALSO THE QUESTION OF DISSIPATION, OKAY? WHAT WAS INTERESTING IS THIS, THIS JOINT VENTURE FELL APART IN SO MANY DIFFERENT WAYS. ONE THING THAT HAPPENED WHICH THEY CONCEALED FROM THE PLAINTIFFS WAS THAT THEY HAD GOTTEN TERMINATED BY THE HARDWARE MANUFACTURER FOR NONPAYMENT AT THE TIME THEY WERE PAYING THEIR PUBLIC RELATIONS AGENCY TO LAUNCH THEIR OWN PROJECT. SO THEY WERE WIRING MONEY, I GUESS TO THEIR U.S. PUBLIC RELATIONS AGENCY, WHILE NOT PAYING THE HARDWARE PROVIDER WHICH CAUSES THE HARDWARE PROVIDER TO WITHDRAW. AND THEY WEREN'T SETTING UP U.S. BANK ACCOUNTS TO PAY THEIR PUBLIC RELATIONS AGENCY. THEY WERE SENDING THEM IN FROM OVERSEAS. THE EVIDENCE SUGGESTS -- AND WE'RE EARLY IN THE DISCOVERY, FRANKLY, YOUR HONOR. THE EVIDENCE SUGGESTS THAT THERE IS A RISK THAT THE FLOW OF FUNDS IS BEING MANIPULATED DELIBERATELY TO AVOID THIS COURT HAVING PRACTICAL JURISDICTION OVER IT. THE COURT: ALTHOUGH NOT TO CASTIGATE THIS PRODUCT IN ANY WAY, BUT IT DOESN'T LOOK LIKE IT'S ACHIEVING -- I MEAN, YOU MAY BE FIGHTING OVER A RATHER FINITE AND RELATIVELY SMALL POOL OF MONEY. I MEAN, YOU KNOW -- AND I'M NOT BEING FACETIOUS ABOUT KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 IT BECAUSE EITHER IT'S GOING TO BE A ROARING SUCCESS IN WHICH CASE THE ENTITY YOU'RE SUING IS GOING TO BE FLUSH WITH CASH THAT YOU CAN GO AFTER, OR THIS IS ALL GOING TO DIE ON THE VINE, AND THERE'S -- YOU KNOW, CONSTRUCTIVE TRUST OR OTHERWISE, THERE'S NOTHING REALLY OUT THERE. MR. BRIDGES: I UNDERSTAND THAT, YOUR HONOR. BUT I THINK PRODUCTS DO EVOLVE. PRODUCTS WHICH COME INTO THE MARKET IN THE WRONG WAY CAN FIND THEIR FEET. IT IS IMPORTANT TO GET IT SET UP CORRECTLY SO THAT WE DO -- SO THAT THE PLAINTIFFS DO GET THEIR RIGHTFUL SHARE. BUT I WILL SAY ALSO, I MEAN, LIKE RIGHT NOW THERE ARE A NUMBER OF CASES THAT THIS COURT HAS SAID WHERE THE DISSIPATION OF FUNDS -- THE THREAT OF DISSIPATION OF FUNDS IS SUFFICIENT. SO HOW DO FUNDS GET DISSIPATED? THEY GET DISSIPATED BY PAYING OUT MONEY FOR NEW -FOR NEW EXPENSES, WHERE THE MONEY NEEDS TO BE HELD NOW FOR THE OBLIGATIONS THAT EXIST NOW. AND ONE THING THAT'S INTERESTING -- AND THIS GOES ALSO TO THE BALANCE OF HARMS -- FUSION GARAGE HAS, ACCORDING TO MR. RATHAKRISHNAN'S DEPOSITION TESTIMONY SEEMS TO HAVE DONE FINE SO FAR WITHOUT ACTUALLY RECEIVING ANY PENNIES YET OF THE PROCEEDS OF THE JOOJOO. THE COURT: AND HE'S QUITE PROUD OF THE INVESTMENT. BECAUSE OF THE VENTURE CAPITAL FUNDS. THAT'S RIGHT. BECAUSE OF THE FINANCING MR. BRIDGES: THAT HE'S GOTTEN BEFORE AND BECAUSE OF THE FINANCING THAT HE'S KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MUCH. EXPECTING TO GET IN THE FUTURE. 40 TO $50 MILLION. SO AT FUSION GARAGE'S END, THERE DOESN'T SEEM TO BE THE PINCH THAT NORMALLY A DEFENDANT WOULD EXPRESS WHEN IT COMES TO BALANCE OF HARMS. AND IF YOU LOOK AT THE CEO'S OWN WORDS, HE'S QUITE CONFIDENT ABOUT HIS FINANCIAL STATUS. TRIED TO SAY THAT: "NO, NO." IN FACT, TECHCRUNCH HAD IT ALL WRONG BASED ON WHAT TECHCRUNCH HEARD. TECHCRUNCH THOUGHT THAT FUSION GARAGE WAS AND THEY HAVE HE NOW VALUES THIS COMPANY AT GOING DOWN THE TUBES. THEY SAID: "NO. NO. WE'RE NOT GOING DOWN THE TUBES." THAT MAY BE FINE, SO IT'S NOT GOING TO HURT THEM SO THE PROBLEM IS ALL THE MONEY THEY ARE GETTING IS PARKED ELSEWHERE. WE DO THINK THAT IT'S RELEVANT THAT THIS COURT BE IN A POSITION -- HOWEVER LARGE OR SMALL THE RECOVERY, WE DO BELIEVE IT'S IMPORTANT THAT THIS COURT ENSURE THAT THERE BE AN EFFECTIVE RECOVERY AT THE CONCLUSION OF THE CASE. THE COURT: ALL RIGHT. DO YOU WANT TO DISCUSS THE PRELIMINARY INJUNCTION? WELL, WHAT DO YOU WANT TO DO, MR. STERN? STILL WANT TO SET IT UP? MR. STERN: IF COUNSEL IS FINISHED, I'LL RESPOND. I DO YOU KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 KNOWS -THE COURT: YOU'RE SAYING AS A MATTER OF LAW YOU WON'T HAVE TO SET IT UP, YOUR HONOR. THE COURT: MR. STERN: GO AHEAD. I WANT TO TALK ABOUT, IF YOUR HONOR -THAT'S ALL RIGHT. I'LL ADDRESS THE POINTS YOU HAVE RAISED, NAMELY THE THRESHOLD QUESTION ABOUT WHETHER OR NOT THIS IS AN APPROPRIATE CASE FOR A FREEZING OF ASSETS, WHICH IS REALLY WHAT HAS BEEN ASKED FOR. WE BROUGHT UP THE GRUPO MEXICANO CASE IN OUR PAPERS. AND, YOUR HONOR, IT IS OUR POSITION WE INSIST THAT UNDER GRUPO MEXICANO, THIS CASE IS ONE THAT IS ABSOLUTELY INAPPROPRIATE FOR ANY SORT OF CONSTRUCTIVE TRUST. NOW, YOUR HONOR MAY BE THINKING: "WELL, IT'S NOT NECESSARY TO ADDRESS THIS, MR. STERN, BECAUSE I'M DENYING IT BASED ON THE FACT THAT THERE IS NO IRREPARABLE INJURY." BUT THIS IS MORE, I THINK, A FINER POINT. YOUR HONOR CAN'T IMPOSE A CONSTRUCTIVE TRUST EVEN IF SOMEONE WERE TO BE ABLE TO SHOW IRREPARABLE INJURIES. MR. STERN: THE COURT: MR. STERN: I AM, YOUR HONOR. I UNDERSTAND. UNDER GRUPO MEXICANO -- I KNOW YOUR HONOR I'VE READ YOUR HONOR'S DECISIONS ON IS FAMILIAR WITH THE CASE. THE SUBJECT -- THE QUESTION IS WHETHER OR NOT THE CLAIMS THAT ARE ASSERTED HERE ARE EQUITABLE CLAIMS. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NOW, THE CLAIMS -- AND, YOU KNOW, I HATE TO BE PUNCTILIOUS ABOUT THIS, BUT IF YOUR HONOR LOOKS AT THE COMPLAINT, THE COMPLAINT ASSERTS THE FOLLOWING CLAIMS. A BREACH OF FIDUCIARY DUTY CLAIM. THERE'S A FRAUD CLAIM. THERE'S THERE'S A LANHAM ACT CLAIM. THERE'S A FALSE ADVERTISING CLAIM. THERE'S AN UNFAIR COMPETITION CLAIM. THOSE US CLAIMS ARE ALL LEGAL CLAIMS. THAT IS THAT -- AND, I MEAN, SPECIFICALLY -THE COURT: MR. STERN: MONEY DAMAGES. -- ALL MONEY DAMAGES. AND HERE'S THE WHAT I MEAN BY INTERESTING THING ABOUT THE COMPLAINTS FILED IN THIS CASE. EVERY SINGLE ALLEGATION REQUIRES DAMAGES. THE ONLY TIME THE WORD "INJUNCTION" IS USED IN THIS CASE IS IN THE PRAYER. THAT'S NOT AN ACCIDENT, AND IT'S NOT -- THAT HAS LEGAL MOMENT. TECHNICALLY, THE PRAYER IS NOT CONSIDERED A PART OF THE COMPLAINT. THE CAUSES OF ACTION THAT WERE PLED HERE, ACTUALLY PLED HERE ALL SEEK ONLY DAMAGES. AND IF YOUR HONOR -THE COURT: YOU CAN HAVE INJUNCTIVE RELIEF UNDER A LANHAM ACT CLAIM IF IT'S PLED AND YOU SUCCEED. MR. STERN: OF COURSE. ABSOLUTELY. BUT THAT THAT WOULDN'T TURN THE CLAIM INTO A SORT OF EQUITABLE CLAIM. WOULD TURN THE CLAIM -- THAT STILL IS A LEGAL CLAIM. SO UNDER -- AND, YOUR HONOR, FOR THE AUTHORITY ON THE POINT THAT THE PRAYER IS IRRELEVANT, WE WOULD CITE YOUR HONOR TO KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A NORTHERN DISTRICT CASE, SANBROOK VERSUS OFFICE DEPOT. CAN PROVIDE YOUR HONOR WITH THE CITATION. THE COURT: MR. STERN: OKAY. IT'S 2008, WEST LAW, 1994884, A MAY 5TH, AND I 2008 DECISION FROM THIS COURT. AND WHAT THAT MEANS IS THAT UNDER -- I THINK THE APPROPRIATE THRESHOLD HOLDING THAT THIS COURT SHOULD HOLD IS: "WAIT A MINUTE. SAID: NTERSERVE HAS COME IN HERE AND 'WE WANT A CONSTRUCTIVE TRUST, AN ASSET FREEZE, WITH RESPECT TO CLAIMS THAT HAVE BEEN ASSERTED THAT ARE NOT EQUITABLE IN NATURE.'" THERE'S NO FRAUDULENT CONVEYANCE CLAIM. THERE'S NO CLAIM -- IN THE VARIOUS CASES THEY HAVE CITED, THERE ARE CERTAIN STATUTES THAT SPECIFICALLY -- THEY CITE ONE PARTICULAR CASE WHERE THE STATUTE SPECIFICALLY AUTHORIZES A CONSTRUCTIVE TRUST. I MEAN, IT'S A FEDERAL STATUTE. THERE IS NO SUCH STATUTE HERE. SO AS A THRESHOLD MATTER, THIS COURT, WITH ALL DUE RESPECT, I THINK, IS WITHOUT AUTHORITY TO EVEN ADDRESS THIS QUESTION OF ISSUING AN INJUNCTION TO FREEZE ASSETS WHETHER IT'S A DOMESTIC ENTITY OR WHETHER IT'S A FOREIGN ENTITY. SO THAT'S POINT NUMBER ONE. POINT NUMBER TWO -- AND THIS COMES DOWN TO -- YOU KNOW, I KNOW YOUR HONOR HAS LOOKED AT THE RECORD. THIS IS AN UNUSUAL CASE FROM AN EVIDENTIARY STANDPOINT FOR ME. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ARGUED. THE COURT: MR. STERN: RIGHT. IN THE DEPOSITION I TOOK OF MR. YOUR HONOR, THE MOTION FOR PRELIMINARY INJUNCTION WAS FILED, AND IN SUPPORT OF IT WAS A SINGLE DECLARATION. AND THE SINGLE DECLARATION WAS THE DECLARATION OF MICHAEL ARRINGTON. AND IN THAT DECLARATION, MR. ARRINGTON MADE TWO STATEMENTS. ONE, HE CHARACTERIZED A PARTNERSHIP -- AND HE USED THAT WORD IN HIS DECLARATION -- A PARTNERSHIP EXISTING BETWEEN MY CLIENT AND TECHCRUNCH OR CRUNCHPAD. THE COURT: MR. STERN: RIGHT. AND NUMBER TWO, HE STATED CATEGORICALLY IT'S NOT CLEAR WHICH. IN PARAGRAPH 31 OF HIS DECLARATION THAT THERE WAS AN AGREEMENT, NOT MY WORDS, YOUR HONOR. BUT HE SAID: "I AGREED" -- THE WORD WAS "AGREED -- THAT THE PARTIES WOULD EACH ABSORB THEIR OWN EXPENSES. BUT IF THE PROJECT WAS SUCCESSFUL, THEN THEY WOULD SHARE PROFITS." THAT'S THE QUOTE. IT'S UNDER OATH. THIS IS NOT ARRINGTON, AS YOUR HONOR KNOWS -- AND THIS IS WHAT MUCH OF THE PRESENTATION WAS, BUT YOUR HONOR HAS THE EVIDENCE BEFORE HIM -MR. ARRINGTON, WITHOUT THE INTERFERENCE OF COUNSEL, WITHOUT THE INSTRUCTION OF COUNSEL, REFUSED TO ANSWER QUESTIONS ABOUT PARTNERSHIP CLAIMING THAT IT WAS A LEGAL CONCLUSION. THE COURT: RIGHT. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. STERN: AND WHEN I ASKED QUESTIONS ABOUT: TELL ME ABOUT THE "FORGET PARTNERSHIP. AGREEMENTS THAT WERE REACHED WITH RESPECT TO PROFIT," HIS ANSWER WAS THE SAME. HIS ANSWER WAS: "I'M NOT ANSWERING QUESTIONS BECAUSE I'M," QUOTE, "UNCOMFORTABLE TALKING ABOUT LEGAL CONCLUSIONS." AND THE RECORD IS REPLETE WITH THAT. THE COURT: YOU GAVE ME QUITE A FEW EXCERPTS AND SHOWED THE "I'M NOT COMFORTABLE WITH LANGUAGE," BUT -MR. STERN: INTERRUPT, OF COURSE. THE COURT: MR. STERN: GO AHEAD. WHEN I ASKED HIM ABOUT WHY IT WAS IN HIS IF I CAN JUST -- I DON'T WANT TO DECLARATION HE'S PREPARED TO TALK ABOUT THE WORD "PARTNERSHIP," BUT THAT IN FRONT OF ME ON CROSS-EXAMINATION ON THE RECORD HE'S NOT PREPARED TO, HIS RESPONSE WAS: "I HAVE NO ANSWER FOR YOU." THAT'S NOT ME MAKING THAT UP. HE SAID THAT. I THINK THERE'S SOMETHING ACUTELY INEQUITABLE ABOUT A PARTY COMING TO YOUR HONOR SEEKING EQUITY SAYING: "HERE ARE THE FACTS ABOUT THE ESTABLISHMENT OF A JOINT VENTURE OR PARTNERSHIP," BUT WHEN THEY ARE IN THE CRUCIBLE OF CROSS-EXAMINATION OR DEPOSITION THEY CLAM UP. AND I AM NOT -- I WANT TO MADE THIS CLEAR. MR. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BRIDGES DID NOT INSTRUCT HIM NOT TO ANSWER THE QUESTIONS. SIMPLY REFUSED TO ANSWER THE QUESTIONS. I KNOW YOUR HONOR HAS MADE A PRELIMINARY DETERMINATION, ALTHOUGH I KNOW IT'S NOT BINDING, THAT THERE WAS SOME SORT OF JOINT VENTURE. AND BECAUSE OF THE PERSON WHO WE ARE FACING, MR. ARRINGTON, WHO HAS AN ENORMOUSLY POPULAR BLOG, I'M CONCERNED ABOUT THE INTERPRETATION THAT WILL BE GETTING IN A VARIETY OF DIFFERENT LOCATIONS. THE COURT: I AM AWARE OF YOUR VIGOROUS ARGUMENT THAT HE THE DEPOSITION TRANSCRIPT OF MR. ARRINGTON SOMEHOW EITHER REPRESENTS SOME ADMISSION OR SOME -- HE'S ESTOPPED FROM ARGUING CONTRARY OR WHATEVER, I HAVE TO SAY I THINK TOO MUCH -- PERHAPS YOUR PUTTING MORE EMPHASIS ON THAT PARTICULAR TESTIMONY THAN I WOULD. I LOOKED AT WHAT APPEARS TO BE A RECORD OF SOLID RATHER THAN EXTENSIVE INTERACTION BETWEEN THE TWO PARTIES GOING FORWARD ISSUES SUCH AS PERSONNEL FROM PLAINTIFFS GOING TO SINGAPORE, WORKING WITH FUSION. I UNDERSTAND THAT FUSION SAYS: "OH, THEY WERE SPYING ON US," OR WHATEVER. BUT TO TAKE A DEPOSITION OF, INDEED, A CENTRAL PLAYER ON THE PLAINTIFFS' SIDE WHERE THERE'S A BACK AND FORTH WITH COUNSEL ASKING QUESTIONS WHERE THE ANSWERS YOU THINK, TO PUT IT IN THE VERNACULAR, AS BEING FAR TOO CAGEY THAN HE SHOULD BE, MY KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 REACTION TO THAT IS TO SOME EXTENT THAT'S A DISCOVERY MOTION THAT NEEDS TO BE BROUGHT. AND IT IS NOT THE TYPE OF TESTIMONY THAT SHOULD PROMPT ME TO SAY: "THIS IS SO TERRIBLE THAT I'M NOT GOING TO LOOK AT ANYTHING ELSE THAT IS COMING DOWN THE PIKE." AND THERE IS A LOT OF CONDUCT THAT IS REFLECTED IN THE MATERIALS THAT I'VE BEEN RECEIVING. AND I RECOGNIZE YOU SAID, MR. STERN, THAT YOU WERE REACTING -- YOU WERE TAKING THIS BACK TO THE INITIAL POINT WHERE ALL YOU HAD WAS A DECLARATION, AND YOU WERE FOLLOWING THEM FROM THAT. AND THERE'S BEEN A LOT OF FLURRY OF MATERIALS COMING IN POST THAT PERIOD. BUT THE MATERIALS THAT HAVE COME IN POST THAT PERIOD REFLECT TO ME SOME CONDUCT THAT LOOKS TO ME LIKE A JOINT VENTURE. MR. STERN: WELL, YOUR HONOR, IF I CAN JUST -- THERE'S A DECISION THAT I THINK THAT YOUR HONOR -- I WOULD LIKE TO FOCUS YOUR HONOR ON ALL OF THE CASES CITED IN THE MOTION TO DISMISS AND IN THE PRELIMINARY INJUNCTION MOTION. I THINK THE CASE THAT IS THE MOST INSTRUCTIVE IS THE BUSTAMANTE DECISION. AND IT'S CALLED BUSTAMANTE VERSUS INTUIT. AND THE REASON BUSTAMANTE IS SO IMPORTANT IS BECAUSE IN THAT CASE BUSTAMANTE, THE PLAINTIFF, AND INTUIT, SPENT A YEAR-AND-A-HALF, A YEAR-AND-A-HALF WORKING TOGETHER TO DEVELOP MEXICO AS THE LOCATION WHERE BUSTAMANTE WOULD ULTIMATELY HAVE AN EXCLUSIVE KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 LICENSE TO DISTRIBUTE QUICKBOOKS PRODUCT. AWARD-WINNING PRODUCT. AND BUSTAMANTE SUED UNDER TWO THEORIES. HE SAID, NUMBER ONE, ULTIMATELY AFTER A YEAR-AND-A-HALF, INTUIT SAID: "YOU KNOW WHAT? DONE HERE. WE'RE DONE. WE'RE ABSOLUTELY THAT'S INTUIT'S WE ARE DOING THIS ON OUR OWN." THEY DIDN'T USE BUSTMANTE. BUSTAMANTE SUED UNDER BREACH OF CONTRACT AND UNDER PARTNERSHIP THEORY. AND THE COURT SAID, THE CALIFORNIA COURT OF APPEAL -- THE TRIAL COURT THREW THE CASE OUT ON SUMMARY JUDGMENT. CALIFORNIA COURT OF APPEAL. AND THE COURT OF APPEAL AFFIRMED. AND IT'S A VERY THEY WENT UP TO THE IMPORTANT DECISION, BECAUSE I THINK IT BEARS DIRECTLY ON THIS CASE. AND THE REASON IT DOES IS IN THIS CASE, THE FOCUS OF THE PARTIES' ATTENTION WAS NOT THE DEVELOPMENT OF THE JOOJOO OR THE CRUNCHPAD. IT WAS -- THE FOCUS OF THE INTENTION OF THE PARTIES WAS ON THE MERGER. AND I CANNOT STRESS THIS ENOUGH, YOUR HONOR. THE FACT OF THE MATTER IS THE PIVOTAL DATE -- AND THIS IS IN THE RECORD -- THE PIVOTAL DATE IS THAT ON JUNE 27 -- ON JUNE 27, YOUR HONOR. HONOR. AND I'M HAPPY TO PROVIDE THE EXHIBITS TO YOUR ON JUNE 27 OF 2009, MICHAEL ARRINGTON WROTE AN E-MAIL TO MY CLIENT, CHANDRASEK RATHAKRISHNAN, AND SAID TO HIM: "YOU KNOW WHAT? I'M TIRED OF ALL THIS. IT DOESN'T LOOK LIKE YOU HAVE THE ABILITY TO SPEAK FOR KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 AND SAID: "YOU KNOW WHAT? I REALLY WANT TO DO A DEAL. YOUR INVESTORS. IT DOESN'T LOOK LIKE WE'RE GOING TO I'M CALLING THE DEAL OFF." BE GETTING ANYWHERE. AND THAT'S NUMBER ONE, AND NUMBER TWO, HE SAID: "I'M TELLING THE INVESTORS, THE POTENTIAL INVESTORS, THAT THIS ISN'T GOING FORWARD." IN RESPONSE TO THAT, MY CLIENT RESPONDED ON THAT DATE LET'S SEE IF WE CAN DO A DEAL." AND THE NUMBER THAT WAS BANTERED ABOUT WAS EITHER 35 PERCENT OR 40 PERCENT. WHAT IS UNEXPLAINED IN THIS CASE AND WHICH I THINK IS A CRITICAL FACTOR IN THIS CASE, WHICH WE BROUGHT UP IN OUR OPPOSITION, IS THAT IN SEPTEMBER OF 2009, THREE MONTHS LATER, THERE'S AN E-MAIL EXCHANGE THAT TAKES PLACE BETWEEN MR. ARRINGTON AND MS. HARDE, WHO IS -- OR HARDE, H-A-R-D-E, WHO IS HIS CFO. AND IN THAT E-MAIL THEY ARE TALKING ABOUT VARIOUS DIFFERENT INTERESTS THAT THEY WOULD PROVIDE FUSION GARAGE IN CRUNCHPAD. AND THOSE INTERESTS -- IT'S A EXHIBIT EIGHT TO THE DEPOSITION WHICH IS PART OF THIS RECORD. AND IN THAT DOCUMENTS, WHAT IS DISCUSSED IS CONTROL. MS. HARDE AND MR. ARRINGTON ESSENTIALLY SAY: "WE'VE JUST DISCOVERED SOMETHING. IF WE GIVE FUSION GARAGE 35 PERCENT OF CRUNCHPAD, IT'S NOT THAT KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE OTHER 65 PERCENT BELONGS TO TECHCRUNCH. BECAUSE OF VARIOUS THIRD-PARTY INVESTORS WHO ARE GOING TO BE PUTTING CAPITAL IN AND THEREBY TAKING AN INTEREST, AT 35 PERCENT GIVEN TO FUSION GARAGE AND 65 PERCENT GIVEN TO TECHCRUNCH, THE ACTUAL INTEREST THAT TECHCRUNCH HAS IN CRUNCHPAD IS BELOW 50 PERCENT. THEY LOSE CONTROL." AND FOR THAT REASON THEY DECIDE THAT THEY CANNOT ACCEPT 35 PERCENT. IT'S TOO BIG. AND ON OCTOBER 16TH, 2009, A TERM SHEET -- NOT A "TERM SHEET," I'M SORRY -- A CAP TABLE IS SENT, A CAPITALIZATION TABLE IS SENT BY THEM TO MY CLIENT SAYING: "THE NUMBER IS TWENTY-THREE-AND-A-HALF PERCENT. TWENTY-THREE-AND-A-HALF PERCENT." NOW, AT THAT POINT -- WHY THIS IS IMPORTANT, YOUR HONOR, IS UNDER PARAGRAPH 19 OF MR. ARRINGTON'S DECLARATION HE SWORE TO YOUR HONOR THAT THERE WAS A DEAL AT 35 PERCENT. WE KNOW THAT'S CATEGORICALLY FALSE NOW. DEPOSITION, IT'S CATEGORICALLY FALSE. THE COURT: NO JOINT VENTURE? MR. STERN: THE COURT: MR. STERN: YES, YOUR HONOR. WHY? BECAUSE -- AND THIS IS THE BUSTAMANTE IN HIS AND THE REASON -- BUT DOES THAT NECESSARILY MEAN THERE WAS DECISION -- THE POINT IS WHEN THE PARTIES -- WHEN THE FOCUS OF KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE PARTIES' ATTENTION IS ON A PARTICULAR POINT OF TRANSACTION, AND IN THE BUSTAMANTE CASE THE FOCUS OF THE ATTENTION WAS ON THE EXCLUSIVE LICENSING AGREEMENT. JOINT VENTURE. NOT ON A PARTNERSHIP. NOT ON A BUT IT WAS ON A PARTICULAR SORT OF TRANSACTION. THAT ACCORDING TO THE BUSTAMANTE DECISION, THAT'S THE FOCUS OF THE TRANSACTION. WHAT THERE ISN'T IS NOT SOME SORT OF SPILLOVER EFFECT OR DEFAULT THAT: "WELL, IF THE PARTIES DON'T END UP WITH THAT FOCUS-OF-ATTENTION TRANSACTION, THEN A JOINT VENTURE OR PARTNERSHIP OR SOME OTHER ERSATZ RELATIONSHIP ARISES DUE TO THE FACT WHAT THEY ARE LOOKING FOR ISN'T REALLY THERE, AND THAT'S CRITICAL HERE. THE COURT: WELL, THAT'S ONE WAY TO LOOK AT IT. ONE WAY TO LOOK AT IT IS THE PARTIES ARE STEAMING ALONG LOOKING TOWARDS SOME KIND OF OWNERSHIP DIVISION AND MERGER, AND WHAT HAVE YOU, BUT IN THE MEANTIME THEY ARE ALSO ENGAGED IN A JOINT ENTERPRISE TO DEVELOP A PRODUCT. AND YOU'RE SAYING IT'S SOMEWHAT -- IF IT DOESN'T COME TO COMPLETE FRUITION, THE FORMER, THE MERGED ENTITY WITH A SPECIFIC OWNERSHIP DELINEATION BETWEEN THE PARTIES, THEN EVEN IF THEY HAVE ENGAGED IN CONDUCT FOR A YEAR-AND-A-HALF, TWO YEARS TO DEVELOP A PRODUCT IN THE MEANTIME, THEY HAVE NOT BEEN ENGAGED IN A JOINT VENTURE. IF THEY THINK THEY HAVE, THEY HAVEN'T, BECAUSE IT KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NEVER CAME TO FRUITION AT THE END. AND IF BUSTAMANTE -- AND I'LL GO BACK AND LOOK AT IT -- STANDS FOR THE PROPOSITION THAT NO MATTER WHAT THE ACTIVITY HAS BEEN AND HOW COLLABORATIVE IT HAS AND NO MATTER WHAT PERIOD OF TIME IT CAN NEVER THEN BE TERMED A JOINT VENTURE? AGAIN. WELL, OKAY, I'LL TAKE A LOOK AT IT BUT THAT'S NOT MY UNDERSTANDING. MR. STERN: THAT'S NOT WHAT BUSTAMANTE HOLDS. I DON'T WANT TO SUGGEST IN NO POSSIBLE WORLDS. THE SIMILARITY BETWEEN BUSTAMANTE AND THIS CASE IS THE FOLLOWING. IN BOTH CASES IT'S UNDISPUTED THAT THE WAY THIS DEAL WAS SUPPOSED TO BE STRUCTURED, THE WAY THIS DEAL WAS SUPPOSED TO BE STRUCTURED WAS THAT FUSION GARAGE AND VARIOUS OUTSIDE INVESTORS AND TECHCRUNCH WERE ALL GOING TO BUY SOME SORT OF INTEREST IN CRUNCHPAD -- CRUNCHPAD WAS GOING TO BE THE ENTITY THAT WAS GOING TO BE DOING WHATEVER IT WAS DOING. IN ORDER TO MAKE THIS DEAL WORK, THEY HAD TO RAISE $2 MILLION IN CLIENTS. MILLION. WHEN I DEPOSED MR. ARRINGTON -- BY THE WAY, THAT BEARS DIRECTLY ON THIS MOTION. MY CLIENT RAISED $3 MILLION. IF AND THAT'S THE NUMBER. IT WAS $2 TWO -- MR. ARRINGTON CONCEDED THAT $2 MILLION WAS AN ADEQUATE FUNDING TO START AND LAUNCH A PRODUCT. CERTAINLY MY CLIENT'S DEVELOPING $3 MILLION IS ADEQUATE. BUT IN ALL EVENTS, WHAT EVERYBODY UNDERSTOOD THAT A DEPENDENT CONDITION, A CONTINGENCY FOR THIS WHOLE DEAL WAS THAT KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THIRD PARTIES WERE GOING TO INVEST. AND THERE'S A SPECIFIC I'M SORRY, DOCUMENT WHICH -- I KNOW IT'S BEFORE YOUR HONOR. YOUR HONOR. I'M -- THERE IS A SPECIFIC DOCUMENT THAT WE HAVE. AND IN THAT DOCUMENT IT'S A -- IT IS THE -- IT'S EXHIBITS 13 TO MR. ARRINGTON'S DEPOSITION. IN THAT DOCUMENT IT SHOWED THAT TO GET THE $2 MILLION THEY HAD TO TALK TO AT LEAST, AT LEAST FOUR DIFFERENT INVESTORS. AND THOSE DIFFERENT INVESTORS WERE AT THE TIME A COMPANY CALLED "FIRST ROUND CAPITAL," A. GENTLEMAN BY THE NAME OF RONALD CONWAY, AND AN ORGANIZATION CALLED SOFTTECH VENTURES. AND THEN, THE BULK WAS SOME UNIDENTIFIED ASIAN INVESTOR, SINGAPOREIAN INVESTOR. SO, REMEMBER, THIS WHOLE -- THE WHOLE DEAL, WHETHER THEY COULD WORK TOGETHER, WHETHER THEY WOULD FINANCE AN OPERATION, WHETHER THEY COULD GO FORWARD TOGETHER THAT WAS CONTINGENT ON THEM GETTING FINANCING. EVERYBODY UNDERSTOOD IT WAS PART OF THE DEAL HERE. NEVER CAME THROUGH. FORGET WHAT MY CLIENT DID, YOUR HONOR. IGNORE QUESTIONS ABOUT WHETHER OR NOT MY CLIENT HAD GHOSTWROTE A LETTER TO ONE OF ITS INVESTORS. THE FACT OF THE MATTER IS ANY. NOT A MICHAEL ARRINGTON FAILED TO GET ANY CAPITAL RAISED. DOLLAR. NOT A DOLLAR. DON'T LOOK AT MY CLIENT. COMMITTED TO PAYING AT ALL. NONE OF THESE PARTIES BUT THEY WERE ALL BEING CONTACTED. AFTER -- FROM DECEMBER, 2008, THROUGH NOVEMBER, 2009, MICHAEL KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ARRINGTON COULDN'T GET A SINGLE PERSON SIGNED UP. NOW, THIS IS WHERE BUSTAMANTE COMES IN. BUSTAMANTE COMES IN AND SAYS THAT WHEN THE PARTIES ARE NEGOTIATING A RELATIONSHIP, AND THAT RELATIONSHIP IS DEPENDENT ON VARIOUS CONTINGENCIES, PARTICULARLY FINANCING CONTINGENCIES BY THIRD PARTIES AND THOSE THIRD-PARTY CONTINGENCIES NEVER ARISE, THERE'S NO DEAL. THERE IS NO DEAL. AND THEY PUT IT IN TERMS OF -THE COURT: WELL, YOU'RE DEALING IN -- AND PERHAPS IF YOU ARE EQUATING THE TWO CONCEPTS, AND IT'S FAIR TO DO SO, BUT YOU'RE USING "DEAL" AND "JOINT" -- YOU'RE SAYING "THEREFORE, THERE'S NO JOINT VENTURE." I'M NOT SURE YOU PUT THE TWO TOGETHER. THERE MAY WELL BE A BREAKDOWN OF AN ULTIMATE DEAL IN THE SENSE THAT THE COMPANIES DO NOT FORM AN ENTITY THAT THEN GOES FORWARD AND DOES BUSINESS AND THE LIKE. BUT YOU ARE THEN SAYING: "THEREFORE, THERE COULD NOT HAVE BEEN A JOINT VENTURE IN THE MEANTIME." AND YOU MAY BE RIGHT. I'LL LOOK AT IT AGAIN. BUT THAT WAS NOT MY INITIAL READ ON WHAT YOU NEEDED TO SHOW TO SHOW THAT FOR A CERTAIN PERIOD OF TIME A JOINT VENTURE WAS UP AND RUNNING. MR. STERN: WELL, AND THIS IS THE POINT: THERE ARE JOINT VENTURES, AND THERE ARE JOINT VENTURES. IT COULD BE, YOUR KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 HONOR -- IT'S PERFECTLY PLAUSIBLE IF I'M WORKING WITH MY BROTHER AND WE OPEN UP A SHOP, AND THERE'S NO AGREEMENT -- THERE'S NO WRITTEN AGREEMENT BETWEEN EACH OTHER. BUT WHAT WE DO IS WE START WORKING TOGETHER COLLABORATIVELY, AND TIME GOES BY, AND AFTER AWHILE WE DECIDE IT'S NOT GOING TO WORK OUT, SOMEONE CAN SAY: "YOU KNOW WHAT? EVEN THOUGH THERE WAS NO PAPER, WE HAD A JOINT VENTURE." THE COURT: AND IF I CAN INTERRUPT YOU FOR A MOMENT, THE CONSEQUENCE OF THAT -- AND WE'VE BEEN SPENDING A LOT OF TIME TALKING ABOUT WHETHER OR NOT A JOINT VENTURE DID OR DID NOT EXIST. AND THE REASON WE ARE DOING THAT IS BECAUSE THAT'S WHERE THE BREACH OF FIDUCIARY DUTY COMES INTO PLAY. MR. STERN: THE COURT: ABSOLUTELY. BECAUSE IF DURING THAT PERIOD OF TIME YOU AND YOUR BROTHER HAD WHATEVER UNDERSTANDING IT MAY BE, IT ROSE TO THE LEVEL OF THE TYPE OF UNDERSTANDING WHERE FIDUCIARY OBLIGATIONS AROSE, THAT IS WHY THIS IS ALL IMPORTANT. MR. STERN: THE COURT: MR. STERN: I AGREE WITH YOUR HONOR. YES. BUT THE POINT IS, AS WELL, THAT IF DURING THAT SAME PERIOD OF TIME IT'S NOT -- THE EXAMPLE I GAVE THERE ARE NO CONTINGENCIES. ME AND MY BROTHER. BUT WHEN YOU'RE TALKING ABOUT A SITUATION WHERE KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 WE'RE JUST MARCHING ALONG TOGETHER, JUST 34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 REPORTER. MR. STERN: IT'S "GESUNDHEIT." FOR THAT. EVERYBODY UNDERSTANDS THAT THE DEAL IS DEPENDENT ON THESE THIRD-PARTY FINANCING CONTINGENCIES, EVERYBODY UNDERSTANDS IT. AND BY THE WAY, AN IMPORTANT FOOTNOTE HERE: WE'RE OUT LOOKING FOR FINANCING FOR OURSELVES. ARRINGTON IS LOOKING OUT FOR FINANCING FOR HIMSELF. I MEAN, I DON'T WANT YOU TO GET THE IMPRESSION BECAUSE THE CASE -- THE EVIDENCE CLEARLY SHOWS THIS. HE'S SENDING HIS OWN PEOPLE TO SINGAPORE TO LOOK FOR INDEPENDENT FINANCING SO IF IT DOESN'T WORK OUT WITH US -- THIS IS THE E-MAILS FROM HIS PERSON NICK CUBRILOVIC TO US SAYING: "YOU KNOW WHAT? LET'S KILL FUSION GARAGE. LET'S POACH THEIR EMPLOYEES." THE COURT: MR. STERN: I SAW THOSE. BY THE WAY, YOUR HONOR, INTERESTING LANGUAGE FOR A FIDUCIARY TO USE TOWARD ANOTHER. BUT THE POINT IS -- BY THE WAY, I DON'T SLIGHT THEM THE FACT OF THE MATTER IS THAT TECHCRUNCH AND FUSION GARAGE WERE OUT EACH DOING THEIR OWN THING. THEY WERE TRYING TO RAISE FINANCING ANY WAY THEY COULD. IF THEY COULD DO IT TOGETHER, AS MY GRANDMOTHER WOULD SAY: "GESUNDHEIT. THE COURT: CONGRATULATIONS. THAT'S GREAT." YOU MAY HAVE TO SPELL THAT FOR THE COURT BUT IF THEY CAN'T, IF THEY CAN'T, YOUR HONOR, THEN KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WHAT HAPPENS IS THEY GO THEIR SEPARATE WAYS. THE FINANCING FIRST GOES. AND WHOEVER GETS AND, YOUR HONOR, THAT'S WHAT THIS CASE IS ABOUT. IT'S NOT A CASE OF A JOINT VENTURE OR PARTNER WHERE TWO PEOPLE ARE LOCKED ARM-IN-ARM TOGETHER WORKING TOWARD A COMMON GOAL, IGNORING EVERYTHING ELSE. EACH PERSON HAD THEIR OWN AGENDA, AND THEY WERE ALL TALKING IN THEIR OWN GROUPS. THE COURT: NICK CUBRILOVIC TO MIKE ARRINGTON. WELL, IN THE INTEREST -- YOU KNOW, EACH SIDE WILL POINT OUT THE OTHER SIDE, AS THEY LOOK IN RETROSPECT, WAS UNDERMINING THEM AND ENGAGING IN NEFARIOUS CONDUCT AND THE LIKE. THAT DOESN'T NECESSARILY MEAN, AGAIN, THAT A JOINT VENTURE WASN'T FORMED. IT IS PERHAPS THAT BOTH PARTIES WILL SAY: "THE OTHER SIDE WAS ACTING ABOMINABLY AND CONTRARY TO THEIR FIDUCIARY OBLIGATIONS." I UNDERSTAND YOUR POINT IS TO SAY "NO FIDUCIARY OBLIGATIONS AROSE." BUT YOU'RE USING AS THE ARGUMENT FOR NO FIDUCIARY OBLIGATIONS AROSE: "THE PARTIES WERE BEHAVING VERY BADLY. AND BEHIND THE BACK OF THE OTHER PARTY ONE IS POACHING, THINKING ABOUT POACHING THE OTHER." AND THE OTHER SIDE IS SENDING E-MAILS OFF THAT ARE PURPORTING TO SAY: "INVESTORS ARE BACKING OUT," WHEN THEY ARE NOT. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WITH. THE COURT: MR. STERN: I UNDERSTAND. AND, BY THE WAY, I THINK THE GREATEST MOTION. SAYING: "THEREFORE, THESE PARTIES COULD NOT HAVE BEEN IN A JOINT VENTURE." AND I'M NOT SURE YOU'RE LOOKING AT IT IN THE ORDER IN WHICH I WOULD LOOK AT. MR. STERN: WE'RE HERE ON A PRELIMINARY INJUNCTION I MEAN, SOME OF THAT IS SORT OF LOOKING AT THAT AND AND THE QUESTION YOUR HONOR HAS IS WHETHER OR NOT SOMEONE IS LIKELY TO SUCCEED ON THE MERITS. THE COURT: MR. STERN: RIGHT. WHAT I WANTED TO ADDRESS WAS JUST THAT PRONG WITH RESPECT TO THE LIKELIHOOD OF SUCCESS ON THE MERITS. THE COURT: I KNOW YOU WANT TO CLING ONTO THE IRREPARABLE INJURY PART. MR. STERN: WELL, THE IRREPARABLE INJURY I'M HAPPY PROOF OF THAT, THERE'S THE OBVIOUS GRUPO MEXICANO ISSUE THAT WE HAVE. BUT I THINK THE MORE IMPORTANT THING IS: HOW CAN ARRINGTON COME TO YOUR HONOR AND SAY THAT: "IT WAS REASONABLE FOR ME, MICHAEL ARRINGTON, TO TRY TO RAISE $2 MILLION TO LAUNCH THIS, AND THAT WAS ADEQUATE. THAT WAS ADEQUATE FUNDING, NOT UNDER THAT WAS ENOUGH MONEY TO GET THIS THING CAPITALIZED. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MOVING." AND MY CLIENT RAISES $3 MILLION, AND HE COMES INTO COURT AND SAYS: "THIS IS AN UNDERCAPITALIZED ORGANIZATION THAT MIGHT BE USURPING MY MONIES." THAT'S JUST COUNTERINTUITIVE. POINT NUMBER ONE. POINT NUMBER TWO, WHICH I WANT TO JUST -- THEN I'M GOING TO STEP DOWN FROM THIS, YOUR HONOR. ACCORDING TO MICHAEL ARRINGTON'S DECLARATION, THE ENTIRE AMOUNT OF MONEY INVESTED IN THIS PROPOSITION WAS $400,000. THAT'S THE LAST PARAGRAPH. IT JUST SAYS -- IT'S A CONCLUSORY STATEMENT SAYING THAT TECHCRUNCH INVESTED $400,000. IN HIS DEPOSITION, WHICH I THINK YOU THINK MAY BE MORE APPROPRIATE FOR THE SUBJECT OF A MOTION TO COMPEL, OR DISCOVERY MOTION, I ASKED HIM ABOUT THE $400,000. I SAID: "TELL ME ABOUT THE $400,000." HE DIDN'T KNOW ABOUT IT. NOW, ON THIS MOTION, ON THIS MOTION WHERE THE PARTY HAS TO SHOW LIKELIHOOD OF SUCCESS ON THE MERITS AND IRREPARABLE INJURY I DON'T SEE ANY GAUGE FOR THEIR JURY AT THIS POINT, LET ALONE IRREPARABLE INJURY. I MEAN, I KNOW HE MAY BE CLAIMING THAT HE HAS THE RIGHT TO SOME SORT OF UNDISCLOSED PROFITS IN THE FUTURE, BUT ON THE RECORD WHERE THE WITNESS, THE ONLY WITNESS ON THE QUESTION KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THAT. OF INJURY OR DAMAGES AT ALL SAYS -- BY THE WAY, HE SAID AT HIS DEPOSITION: "I DON'T KNOW ABOUT THESE NUMBERS," DESPITE WHAT HE SAID IN HIS DECLARATION, "YOU HAVE TO TALK TO MS. HARDE ABOUT THAT." AND WE DON'T HAVE ANY INFORMATION FROM MS. HARDE ON I THINK THE ANSWER IS CLEAR. YOUR HONOR IS RIGHT. THERE IS SIMPLY NO PROOF OF IRREPARABLE INJURY. AND WITH RESPECT TO THE MOTION TO DISMISS WE WILL SUBMIT ON YOUR HONOR'S RULING. THE COURT: WHY DON'T YOU ADDRESS FIRST THE POINT MR. STERN MAKES ABOUT PUTTING ASIDE THE TRADITIONAL IRREPARABLE INJURY ANALYSIS WE GO THROUGH? THIS IS NOT AS A MATTER OF LAW A CONSTRUCTIVE -- A CONSTRUCTIVE TRUST CANNOT BE IMPOSED IN THIS CIRCUMSTANCE. MR. BRIDGES: HIS STATEMENTS VIOLATES OR FLOUTS CALIFORNIA COURT OF APPEALS' DECISION IN HECKMANN, WHICH EXPRESSLY SAID THAT A CONSTRUCTIVE TRUST IS AN APPROPRIATE REMEDY FOR BREACH OF FIDUCIARY DUTY. THAT'S THE HECKMANN CASE, H-E-C-K-M-A-N-N, WHICH WE CITED IN OUR PAPERS. MOREOVER, I CITE TO THE COURT CALIFORNIA CORPORATIONS CODE SECTION 16404 (B): "A PARTNER'S DUTY OF LOYALTY TO THE PARTNERSHIP AND THE OTHER PARTNERS INCLUDES ALL OF THE FOLLOWING: KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ONE: TO ACCOUNT TO THE PARTNERSHIP AND HOLD AS TRUSTEE FOR IT ANY PROPERTY, PROFIT OR BENEFIT DERIVED BY THE PARTNER IN THE CONDUCT AND WINDING UP OF THE PARTNERSHIP BUSINESS OR DERIVED FROM A USE BY THE PARTNER OF PARTNERSHIP PROPERTY OR INFORMATION, INCLUDING THE APPROPRIATION OF A PARTNERSHIP OPPORTUNITY." SO STATE LAW COULD NOT BE CLEARER, YOUR HONOR, ABOUT THE APPROPRIATENESS OF A CONSTRUCTIVE TRUST. I WOULD LIKE TO JUST RESPOND TO A COUPLE MORE THINGS. I FRANKLY THINK THE DEFENDANT'S COUNSEL MAY HAVE DUG A DEEPER HOLE THAN HE INTENDED TO WHEN HE CHARACTERIZED THIS AS AN AGREEMENT WITH: "WHOEVER GETS THE FIRST FINANCING GOES." THERE IS NO SUGGESTION THAT THAT WAS AN UNDERSTANDING. EVERYBODY WAS OUT TRYING TO RAISE FINANCING. AND WHY DID TECHCRUNCH COME INTO COURT SAYING: "WELL, THEY ARE UNDERFUNDED AND GOING DOWN"? BECAUSE THEY NEVER DISCLOSED UNTIL AFTER THIS CASE WAS STARTED THE FINANCING THAT MR. STERN CLAIMS WAS THE CONTINGENCY FOR THIS TO GO FORWARD. WERE OFF RAISING MONEY. AS A MATTER OF FACT, THEY AND I THINK THE TESTIMONY SHOWS THEY STARTED GETTING MONEY AND STARTED REORGANIZING THEMSELVES INTERNALLY IN SEPTEMBER, 2009. THE DEALINGS WITH THE PR FIRM. IT'S RIGHT THEN THAT YOU LOOK AT THE DIVORCE IS UNDERWAY IN KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SEPTEMBER WHEN THEY RAISE MONEY. THE MONEY THEY RAISED, EVEN TAKING HIS ARGUMENT ABOUT BUSTAMANTE AT FACE VALUE, WHICH IS DEAD WRONG, EVEN TAKING HIS ARGUMENT AT FACE VALUE THAT CONTINGENCY WAS FULFILLED WHEN HE GOT THAT $3 MILLION BECAUSE THEY NEVER EVER MENTIONED THAT TO TECHCRUNCH. AND THAT'S THE CLASSIC SEIZURE OF AN OPPORTUNITY, A PARTNERSHIP OPPORTUNITY. I THINK THOSE ARE REALLY THE THINGS. THE BUSTAMANTE, I NOTICE MR. STERN BACK OFF WHEN YOU PRESSED HIM ABOUT BUSTAMANTE, BECAUSE HE ACTUALLY REALLY ACCURATELY DESCRIBED IT, AND THEN IT GOES THE WRONG WAY FOR HIM. HE SAID THEY WERE FOCUSED ON A PARTICULAR TRANSACTION. INDEED, THAT'S WHAT BUSTAMANTE WAS ABOUT, AND THAT'S WHY IT WAS NOT A JOINT VENTURE. IT WAS A TRANSACTION THAT WAS NOT CONSUMMATED. THEIR ENTIRE EFFORT IS TO SAY: "THIS IS A FAILED MERGER AND NOTHING MORE." AND WE THINK THE RECORD HAS BEEN CLEAR, AND WE THINK THE COURT HAS OBSERVED WHAT IS IN THE RECORD THAT SHOWS THAT THIS WAS FAR, FAR, FAR MORE, FAR MORE OF AN OPERATION OF A BUSINESS THAN SIMPLY A FAILED MERGER. THANK YOU, YOUR HONOR. THE COURT: THANK YOU. ANY FURTHER COMMENTS? KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. STERN: THE COURT: NO, YOUR HONOR. OKAY. WITH RESPECT TO THE HOUSEKEEPING ISSUE OF UNDER SEAL FILINGS, I DO WANT TO LEAVE IT TO THE PARTIES TO GO BACK AND TAKE A LOOK AT WHAT THEY HAVE SUBMITTED TO ME AND MAKE ANOTHER RUN AT IT IN TERMS OF WHAT YOU ARE GOING TO SUBMIT. AND THEN, IF YOU'VE PARED IT DOWN, THEN PERHAPS IT WILL BE FINE, AND I'LL JUST GO AHEAD AND THEN SIGN THE ORDER. BUT IN THE MEANTIME, JUST FOR YOUR UNDERSTANDING, I'LL KEEP ALL THE PAPERS. I'VE READ THEM ALL. I'LL HAVE THEM, BUT THEY OBVIOUSLY WON'T GO IN THE COURT FILE DESPITE MY RANT ABOUT SEALING, I WON'T THEN FILE THEM. I'LL LET DO YOU ANOTHER RUN AND TELL ME WHAT YOU THINK NEEDS TO BE FILED UNDER SEAL, AND WE WILL GO FROM THERE. MR. BRIDGES: THE COURT: MR. STERN: THE COURT: THANK YOU, YOUR HONOR. OKAY. THANK YOU VERY MUCH, YOUR HONOR. THANK YOU. AND LET'S SEE. DO YOU NEED ANY -- WE WILL TAKE THIS UNDER SUBMISSION. LOOK. GO BACK AND TAKE A GIVE YOU AN ORDER ON BOTH THE PRELIMINARY INJUNCTION MOTION AND THEN THE MOTION TO DISMISS. WE DON'T HAVE ANYTHING FURTHER SCHEDULED BECAUSE YOU NEED MY ORDER ON THE PLEADING MOTION. MR. STERN: I DON'T THINK, YOUR HONOR -- I DON'T THINK WE HAVE A CASE MANAGEMENT CONFERENCE. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: WELL, I WOULDN'T EXPECT IT BECAUSE SEEING THAT ONE OF THE THINGS UNDER SUBMISSION IS A MOTION TO DISMISS. WHAT I'LL DO IS I'LL GIVE YOU AN ORDER ON THAT. ASSUMING THAT THERE'S LEAVE TO AMEND AT LEAST IN WHOLE OR IN PART, I WANT TO GET THE PLEADINGS ESTABLISHED BEFORE WE START DOING SCHEDULING AND OTHER THINGS. SO WITH MY ORDERS YOU WILL BE GETTING SOME DIRECTION ON A CMC. IF IT'S NOT IN THERE AT A CERTAIN POINT WHEN YOU THINK IT SHOULD BE IN THERE, FEEL FREE TO ALERT ME, AND WE CAN SCHEDULE SOMETHING. BUT CORRECT ME IF I'M WRONG. I KNOW THIS CASE HAS BEEN AROUND, AND I'VE INHERITED IT AND ALL THAT. BUT DO WE NEED A CASE MANAGEMENT CONFERENCE? DON'T YOU FIRST NEED TO KNOW WHERE THESE MOTIONS ARE GOING TO GO? MR. STERN: I JUST WANTED TO MAKE SURE, YOUR HONOR. WE WERE ORIGINALLY IN FRONT OF JUDGE WARE. THE COURT: MR. STERN: OKAY. AND THEN, IT GOT TRANSFERRED TO YOU, AND I THOUGHT YOU MIGHT BE UNDER THE IMPRESSION WE WERE ALREADY SET, AND WE WEREN'T. THE COURT: ALL RIGHT. SO THERE ARE NO DATES. YOU NEVER SAW JUDGE WARE. MR. STERN: THE COURT: WE WERE TRANSFERRED TO YOU. GOOD. ALL RIGHT. THANK YOU VERY MUCH. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2 3 24 25 KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 __________________________________ /S/ KATHERINE WYATT MR. BRIDGES: THE CLERK: THANK YOU, YOUR HONOR. COURT'S ADJOURNED. (THEREUPON, THIS HEARING WAS CONCLUDED.) CERTIFICATE OF REPORTER I, KATHERINE WYATT, THE UNDERSIGNED, HEREBY CERTIFY THAT THE FOREGOING PROCEEDINGS WERE REPORTED BY ME, A CERTIFIED SHORTHAND REPORTER, AND WERE THEREAFTER TRANSCRIBED BY ME INTO TYPEWRITING; THAT THE FOREGOING IS A FULL, COMPLETE AND TRUE RECORD OF SAID PROCEEDINGS. I FURTHER CERTIFY THAT I AM NOT OF COUNSEL OR ATTORNEY FOR EITHER OR ANY OF THE PARTIES IN THE FOREGOING PROCEEDINGS AND CAPTION NAMED, OR IN ANY WAY INTERESTED IN THE OUTCOME OF THE CAUSE NAMED IN SAID CAPTION. THE FEE CHARGED AND THE PAGE FORMAT FOR THE TRANSCRIPT CONFORM TO THE REGULATIONS OF THE JUDICIAL CONFERENCE. IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND THIS 17TH DAY OF MAY, 2010.

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