American Semiconductor, Inc v. California Assignments, LLC et al

Filing 97

ORDER by Judge Lucy Koh denying 79 Motion for Order to Show Cause (lhklc2, COURT STAFF) (Filed on 10/30/2013)

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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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United States District Court
For the Northern District of California

SAN JOSE DIVISION
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AMERICAN SEMICONDUCTOR, INC., an
Idaho corporation,
Plaintiff,

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v.

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CALIFORNIA ASSIGNMENTS LLC, a
California limited liability company;
DEVELOPMENT SPECIALISTS, INC., an
Illinois corporation; and DOES 1 through 10,
inclusive,
Defendants.

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Case No.: 12-CV-06138-LHK
ORDER DENYING PLAINTIFF’S
REQUEST FOR NONPARTIES TSI
SEMICONDUCTORS AND NORTHALL
GROUP HOLDINGS TO SHOW CAUSE

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Plaintiff American Semiconductor Inc. (“ASI”) requests that this Court order non-parties

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TSI Semiconductors (“TSI”) and Northall Group Holdings LLC (“Northall”) (collectively,

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“TSI/Northall”) to show cause why they should not be sanctioned for contempt of this Court’s

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April 2, 2013 preliminary injunction order. ECF No. 79 (“Mot.”). TSI/Northall filed its opposition

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to this request on October 10, 2013. ECF No. 89 (“Opp’n.”). ASI filed its reply on October 17,

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2013. ECF No. 91 (“Reply”). Having considered the submissions of the parties, the relevant law,

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and the record in this case, the Court hereby DENIES ASI’s request.

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I.

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BACKGROUND
ASI’s request for an order to show cause arises in the context of an action in which ASI

sued California Assignments, LLC (“CAL”) and Developments Specialists, Inc. (“DSI”)
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Case No.: 12-CV-06138-LHK
ORDER DENYING PLAINTIFF’S REQUEST FOR TSI AND NORTHALL TO SHOW CAUSE

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United States District Court
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(collectively, “CAL/DSI”), alleging that they wrongfully refused to release or allow inspection of
“nearly $1 million of [ASI’s] tangible property, as well as [ASI’s] intellectual property reflecting
more than ten years of development.” ECF No. 5 at 3 (ASI’s preliminary injunction motion).1 ASI
sought a preliminary injunction against CAL/DSI to prevent them from “continuing to remain in
the improper possession, custody or control of [ASI’s] property,” id. at 2, which this Court granted,
ECF No. 45 (Order granting preliminary injunction). ASI’s request for an order to show cause is
based on TSI/Northall’s alleged violation of this preliminary injunction order. ASI has submitted
two declarations in support of its motion. ECF No. 79-9 (Declaration of John Zarian, counsel for
ASI); ECF No. 79-1 (Declaration of Doug Hackler, President and CEO of ASI). In support of its
opposition, TSI/Northall has submitted one declaration (Declaration of David Bridgeford, Chief
Financial Officer of both TSI and Northall). ECF No. 89-1 at 1. Below, the Court sets forth the
relevant facts as not disputed by the parties, unless otherwise indicated.

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ASI is a semiconductor foundry, and SVTC Technologies (“SVTC”) used to operate a plant
located at 3901 North First Street in San Jose, California (the “San Jose Facility”). Hackler Decl.
¶¶ 3-4. For some time, SVTC acted as ASI’s primary supplier of fabrication capacity, id., and ASI
stored some of its intellectual property on tools and equipment located at the San Jose Facility. Id.
¶ 6. In 2012, SVTC refused to release to ASI any of ASI’s intellectual property or other property
unless ASI paid a sum of money which ASI disputed that it owed. Id. ¶¶ 10-15.

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Subsequently, the San Jose Facility was shut down, and the shut down was “coordinated by
CAL/DSI as SVTC’s assignee for the benefit of creditors.” Mot. at 3 (citing Zarian Decl. ¶ 4). ASI
tried to negotiate with CAL/DSI to retrieve its property in October 2012, but CAL/DSI refused to
allow ASI to retrieve, secure, or inspect its property without attaching various conditions. Zarian
Decl.¶ 4; Hackler Decl. ¶ 15. As a result, ASI filed a lawsuit against CAL/DSI in December 2012
in order to resolve the dispute. Zarian Decl.¶ 8.

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According to ASI, sometime after November 1, 2012, “CAL/DSI” conducted an auction of
SVTC’s assets and equipment, and the successful bidder for substantially all the assets and

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ASI and CAL/DSI have since reached a settlement and plan to file a joint stipulation for dismissal
of ASI’s action with prejudice. ECF No. 92.

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ORDER DENYING PLAINTIFF’S REQUEST FOR TSI AND NORTHALL TO SHOW CAUSE

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equipment was TSI. Mot. at 3 (citing Zarian Decl. ¶¶ 5, 11, noting that a company named
“Telefunken” subsequently changed its name to TSI); Zarian Decl. Exhibit G at 93 (deposition
testimony of CAL/DSI’s representative stating that Telefunken bought the assets that were
auctioned). TSI/Northall claim that some of SVTC’s assets and equipment were in fact sold at a
public auction conducted by DSI in November and December 2012 in two different transactions.
Opp’n at 3; Bridgeford Decl. ¶ 3. TSI/Northall, however, contend that neither TSI nor Telefunken
made these purchases. Opp’n at 3, 10; Bridgeford Decl. ¶ 4 (“TSI was not the Acquiring Entity”); ¶
7 (“Telefunken . . . [was] not the Acquiring Entity”) (emphasis in original). Further, while ASI
claims that TSI was formerly known as “Telefunken” and thus implies that the two are one and the
same company, see Mot. at 1, 2 (claiming Telefunken is the former name of TSI); Zarian Decl.
Exhibit H (Sacramento business press article noting that Telefunken changed its name to TSI),
TSI/Northall assert that Telefunken is a “separate legal entity” from TSI, but do not address
whether Telefunken was in fact the former name of TSI. Opp’n at 4; Bridgeford Decl. ¶ 7.
On April 2, 2013, this Court entered its preliminary injunction Order, and enjoined
CAL/DSI and “their agents, servants, employees and attorneys, and all those in active concert or
participation with them,” from taking any one of the following actions before trial: “(1) Selling,
using, moving, concealing, transferring or otherwise disposing of any ASI Inventory or any ASI
Intellectual Property in their possession, custody or control; (2) Moving, transferring, disposing,
concealing or otherwise disposing of any equipment or assets that contained any ASI Intellectual
Property at any time; and, (3) Interfering with [ASI’s] retrieval of ASI Inventory, ASI Intellectual
Property and any other ASI property from the San Jose Facility at a mutually convenient time.”
ECF No. 45 at 2.
On April 12, 2013, after the preliminary injunction was granted, the real property and
facility comprising the San Jose Facility was sold at a trustee’s sale conducted at the behest of
Wells Fargo Bank, who was the secured creditor of SVTC and beneficiary under the deed of trust.
Hackler Decl. Exhibit C; Zarian Decl. Exh DD. According to ASI and the testimony of Geoffrey
Berman, who was deposed as CAL/DSI’s representative, Telefunken created Northall as a “special
purpose entity” in order to buy the San Jose Facility. Mot. at 4; Zarian Decl. Exhibit G, at 93-94,
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ORDER DENYING PLAINTIFF’S REQUEST FOR TSI AND NORTHALL TO SHOW CAUSE

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96, 108 (testifying that Telefunken bought the facility which was subject to the nonjudicial
foreclosure process by Wells Fargo, and shortly thereafter transferred title to the property to a
special entity purpose entity it created, Northall). TSI/Northall agree that Northall acquired the
facility on April 12, 2013 through a trustee’s sale at the behest of Wells Fargo. Opp’n at 4;
Bridgeford Decl. ¶ 9.

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Before the Court now is ASI’s motion for an order to show cause against TSI/Northall,
claiming that TSI/Northall have not complied with the preliminary injunction by moving,
transferring, or otherwise disposing of ASI’s intellectual property or equipment and tools that
contained or once contained ASI’s intellectual property. Mot. at 1-2. ASI also claims TSI/Northall
interfered with ASI’s retrieval of its intellectual property from the San Jose Facility. Id. at 1, 13.
ASI asks this Court to order TSI/Northall to show cause why they should not be sanctioned for
contempt of this Court’s preliminary injunction, and seeks civil contempt sanctions and an award
of reasonable attorneys’ fees and costs. Id. at 14.

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II.

LEGAL STANDARD
Civil contempt “consists of a party’s disobedience to a specific and definite court order by

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failure to take all reasonable steps within the party’s power to comply.” Reno Air Racing Ass’n.,
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Inc. v. McCord, 452 F.3d 1126, 1130 (9th Cir. 2006) (citing In re Dual–Deck Video Cassette
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Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993)); see also In re Crystal Palace
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Gambling Hall, Inc., 817 F.2d 1361, 1365 (9th Cir. 1987) (“A person fails to act as ordered by the
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court when he fails to take all the reasonable steps within his power to insure compliance with the
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court’s order.”) (citation, quotation marks, and alterations omitted). “The contempt ‘need not be
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willful,’ and there is no good faith exception to the requirement of obedience to a court order.” In
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re Dual-Deck Video, 10 F.3d at 695 (citing In re Crystal Palace, 817 F.2d at 1365).
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“Civil contempt sanctions . . . are employed for two purposes: to coerce the defendant into
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compliance with the court’s order, and to compensate the complainant for losses sustained.”
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Whittaker Corp. v. Execuair Corp., 953 F.2d 510, 517 (9th Cir. 1992) (citing United States v.
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United Mine Workers of Am., 330 U.S. 258, 303-04 (1947)). “Generally, the minimum sanction
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necessary to obtain compliance is to be imposed.” Id. (citations omitted). “Unlike the punitive
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nature of criminal sanctions, civil sanctions are wholly remedial.” Id. (citation omitted). “A court
has wide latitude in determining whether there has been contemptuous defiance of its order.”
Gifford v. Heckler, 741 F.2d 263, 265–66 (9th Cir. 1984) (citing Neebars, Inc. v. Long Bar
Grinding, Inc., 438 F.2d 47, 48 (9th Cir. 1971)). Trial courts also have power to award reasonable
attorney’s fees and costs against the contemnor as a sanction for disobedience of its orders. Perry v.
O’Donnell, 759 F.2d 702, 705 (9th Cir. 1985).

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“The party alleging civil contempt must demonstrate that the alleged contemnor violated
the court’s order by ‘clear and convincing evidence.’” In re Dual–Deck Video, 10 F.3d at 695
(citing Vertex Distrib., Inc. v. Falcon Foam Plastics, Inc., 689 F.2d 885, 889 (9th Cir. 1982)). “The
burden then shifts to the contemnors to demonstrate why they were unable to comply.” Stone v.
City and County of San Francisco, 968 F.2d 850, 856 n.9 (9th Cir. 1992) (citing Donovan v.
Mazzola, 716 F.2d 1226, 1240 (9th Cir. 1983)). “They must show they took every reasonable step
to comply.” Id. (citation omitted).

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III.

ANALYSIS
The Court must decide whether TSI/Northall’s alleged violations of the preliminary

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injunction can serve as an appropriate basis for an order to show cause. The Federal Rules of Civil
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Procedure “provide for enforcement of judgments against non-parties in limited circumstances.”
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Peterson v. Highland Music, Inc., 140 F.3d 1313, 1323 (9th Cir. 1998). Pursuant to Fed. R. Civ. P.
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65(d), an injunction is “binding only upon the parties to the action, their officers, agents, servants,
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employees, and attorneys, and upon those persons in active concert or participation with them who
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receive actual notice of the order by personal service or otherwise.”2 Fed. R. Civ. P. 65(d). The

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Court must thus resolve, as a threshold matter, whether its preliminary injunction order binds TSI
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and Northall, who were not parties to the action in which this Court’s preliminary injunction was
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entered. TSI/Northall argue that they are not bound by the preliminary injunction, and thus cannot
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Fed. R. Civ. P. 71 provides that “when obedience to an order may be lawfully enforced against a
person who is not a party, that person is liable to the same process for enforcing obedience to the
order as if a party.” Fed. R. Civ. P. 71. “Rule 71 was intended to assure that process be made
available against persons who are properly affected by them, even if they are not parties to the
action.” Westlake North Property Owners Ass’n v. Thousand Oaks, 915 F.2d 1301, 1304 (9th Cir.
1990).
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be held in contempt for violating its terms, because they were not parties to the action, were not
named in the Court’s preliminary injunction order, and are neither in privity with, nor a successorin-interest to, any entity subject to the injunction. See Opp’n. at 2, 6, 8-10. In contrast, ASI argues
that although TSI and Northall are not named parties in the injunction order, they are properly
subject to the injunction because (a) there is “sufficient ‘privity’” between TSI/Northall and
CAL/DSI, who are bound by the injunction; and/or (b) TSI/Northall are successors in interest “to
the equipment and assets that are subject to the injunction.” Mot. at 11. Bearing in mind that the
movant has the burden of proving contempt by clear and convincing evidence, Wolfard
Glassblowing Co. v. Vanbragt, 118 F.3d 1320, 1322 (9th Cir. 1997), the Court concludes that ASI
has not proven by clear and convincing evidence that nonparties TSI and Northall are bound by the
injunction, as explained below. Thus, the Court DENIES ASI’s request for an order to show cause.

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A.

ASI has not shown clear and convincing evidence that TSI/Northall aided
and abetted CAL/DSI in violating the injunction, are “legally identified” with
CAL/DSI, or are in “privity” with CAL/DSI.

As stated above, the federal rules of civil procedure “provide for enforcement of judgments
against non-parties in limited circumstances.” Peterson v. Highland Music, Inc., 140 F.3d 1313,
1323 (9th Cir. 1998). Pursuant to Fed. R. Civ. P. 65(d), an injunction is “binding only upon the
parties to the action, their officers, agents, servants, employees, and attorneys, and upon those
persons in active concert or participation with them who receive actual notice of the order by
personal service or otherwise.” Fed. R. Civ. P. 65(d). The Ninth Circuit has interpreted this rule to
develop two alternative standards under which a court may hold a nonparty in contempt. First, a
nonparty may be held in contempt if the nonparty had notice of the order, and either aids or abets
the defendant in violating the court’s order or is “legally identified” with the defendant. Peterson,
140 F.3d at 1323 (citation omitted). Second, the Ninth Circuit has held that “a decree of injunction
not only binds the [] defendant, but also those identified with them in interest, in ‘privity’ with
them, represented by them or subject to their control.” Class Plaintiffs v. City of Seattle, 955 F.2d
1268, 1280 (9th Cir. 1992) (citation omitted). “Privity” exists when a third party’s interests are so
intertwined with a named party’s interests that it is fair to hold the third party bound by the
judgment against the named party, i.e., to bind TSI/Northall by the injunction against CAL/DSI.
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United States v. ITT Rayonier, Inc., 627 F.2d 996, 1003 (9th Cir. 1980). Privity can also arise if a
third party, here TSI/Northall, had control over the litigation of the injunction conducted by the
named party, here CAL/DSI, see Montana v. United States, 440 U.S. 147, 154 (1979), or if
TSI/Northall’s interests were adequately represented by CAL/DSI in the injunction proceedings,
see Rayonier, 627 F.2d at 1003. The Court concludes that ASI has failed to meet its burden either
under Peterson or Class Plaintiffs, as explained below.
The Court first finds that ASI fails to meet its burden under Peterson to prove that TSI and
Northall either aided or abetted CAL/DSI in violating the injunction or that they are somehow
“legally identified” with CAL/DSI. Peterson, 140 F.3d at 1323. First, while ASI claims that both
CAL/DSI and TSI/Northall have violated the terms of the preliminary injunction, see Mot. at 45(CAL/DSI), 12-13(TSI/Northall), ASI never alleges that TSI/Northall aided and abetted or
somehow acted in concert with CAL/DSI when CAL/DSI violated the injunction. See Mot. at 1114. Rather, ASI argues that “TSI and Northall, acting individually or in concert, have taken a
number of actions that are in clear violation” of the injunction. Mot. at 12. Second, under the
limited guidance courts have provided regarding what it means for a nonparty to be “legally
identified” with a party bound by an injunction, ASI has not met its burden of showing that
TSI/Northall are legally identified with CAL/DSI. See NLRB v. Sequoia Dist. Council of
Carpenters, 568 F.2d 628, 633 (9th Cir. 1977) (“[P]rincipal officers of a labor union are [] legally
identified with it, and thus [are] liable in contempt for disobeying an order directed to the union.”);
United States v. Montgomery Global Advisors LLC, No. C-04-00733 EDL, 2006 WL 950102 at *2
(N.D. Cal. Mar. 2, 2006) (holding, in case where contempt order was directed solely to a corporate
defendant, that managing member could be held personally liable for defendant’s contempt
because he “had and continues to have the ability to act on behalf of that entity and is therefore
legally identified with it.”); Fid. Nat. Fin., Inc. v. Friedman, 76 Fed. R. Serv. 3d 276 at *13 (D.
Ariz. 2010) (holding that nonparty was not “legally identified” with the party bound by court order
for contempt purposes because the plaintiff had not shown that the nonparty was at the very least
either “legally responsible for the affairs of” the party bound or that he “had and continues to have
the ability to act on [his] behalf”). Here, ASI has not shown that TSI/Northall are the managing
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members or principal officers of CAL/DSI, or that TSI/Northall act on behalf of CAL/DSI in some
legal capacity.

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Second, the Court finds that ASI fails to meet its burden under Class Plaintiffs. ASI has not
presented any evidence, let alone clear and convincing evidence, that TSI/Northall were somehow
represented by CAL/DSI, were subject to CAL/DSI’s control, had control over the litigation
between CAL/DSI and ASI, or had their interests represented by CAL/DSI when this Court
entertained the parties’ arguments before entering the preliminary injunction order. Nor is the
Court convinced by ASI’s claim that there is “sufficient ‘privity’” between TSI/Northall and
CAL/DSI because there was an “alignment of interest between TSI and CAL/DSI at the time when
CAL/DSI transferred the assets at issue to TSI.” Mot. at 11. ASI supports this argument by noting
that “CAL/DSI wanted to transfer the assets for monetary consideration and TSI (and its affiliates)
wanted to acquire the assets in question. . . . [the] transaction [] resulted in a mutual benefit to both
sides.” Reply at 6. As a preliminary matter, it is unclear precisely what asset transactions ASI
refers to here in attempting to establish privity. However, in its “factual background” section, ASI
cites two key transactions: (1) TSI’s alleged purchase of substantially all of the assets and
equipment at the San Jose Facility sometime after November 1, 2012 from CAL/DSI, Mot. at 3,
and (2) Northall’s purchase of the real property comprising the San Jose Facility on April 12, 2013,
Mot. at 4. As explained below, the Court finds that neither transaction suffices to establish privity
between TSI/Northall and CAL/DSI.

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First, the Court addresses the sale of substantially all the SVTC equipment and assets which
occurred sometime after November 1, 2012.3 The first hurdle ASI faces when attempting to
establish privity through this transaction is that ASI has not proven by clear and convincing
evidence that TSI was the entity that made this purchase. ASI’s motion states, “CAL/DSI sold
substantially all of the equipment at the San Jose Facility to TSI.” Mot. at 3. ASI supports this
argument by claiming that Telefunken successfully bid for and purchased the equipment, and that
Telefunken was simply TSI’s former name. See Zarian Decl. Exhibit G at 93 (deposition testimony

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While TSI/Northall claim this transfer of assets and equipment occurred in two separate
transactions, one in November 2012 and the other in December 2012, this difference does not
change the Court’s analysis.
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of CAL/DSI’s representative stating that Telefunken bought the assets that were auctioned); Zarian
Decl. ¶ 11 (citing Zarian. Decl. Exhibit H (Sacramento business press article noting that
Telefunken changed its name to TSI) for the proposition that Telefunken changed its name to
TSI)4; Mot. at 1, 2 (claiming Telefunken was the former name of TSI). ASI further notes that
Telefunken and TSI “shar[e] a common business address,” Reply at 3, but does not cite any
evidence in support. In contrast, TSI/Northall claim that neither Telefunken nor TSI was the
acquiring entity. Bridgeford Decl. ¶ 4,7. And TSI/Northall repeatedly assert that Telefunken is a
“separate legal entity” from TSI, Opp’n at 4; Bridgeford Declaration ¶ 7, though they never address
or rebut ASI’s assertion that TSI was formerly known as “Telefunken.” Given these conflicting
assertions and evidence, the Court finds that even if the Court were convinced that Telefunken
made the purchase, ASI has not submitted clear and convincing evidence that Telefunken was in
fact the former name of TSI such that Telefunken’s purchases were really TSI’s purchases. ASI’s
sole evidence in support of the lineage between Telefunken and TSI is a news article which may
contain incorrect facts. See Zarian Decl. Exhibit H (Sacramento business press article noting that
Telefunken changed its name to TSI).

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Nonetheless, even assuming ASI has proven by clear and convincing evidence that TSI
bought the assets in question, the Court concludes that ASI’s “privity” argument would fail for a
second reason. In the Ninth Circuit, there is no law that holds that a mere transfer of assets such as
the one in this case creates privity between two parties for purposes of holding a nonparty bound to
an injunction. While ASI cites American Equipment Corp. v. Wikomi Mfg. Co., 630 F.2d 544 (7th
Cir. 1980), for the proposition that “two companies are in privity when one sells corporate assets
subject to the injunction to another,” see Mot. at 10, that case did not so hold, as the “factual
determination of privity [was] not before [the court] for decision.” American Equipment, 630 F.2d
at 546 n.1. Rather, the American Equipment court only reached a “tentative conclusion” that there
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TSI/Northall object to Zarian’s recitation of information in the Sacramento business article on the
basis of speculation, lack of personal knowledge, and hearsay. Opp’n at 16 (Objection Number 18).
The Court SUSTAINS the objection because Zarian’s recital of the statements in the article is
hearsay. Fed. R. Evid. 801.
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and its predecessor company based on the transfer of the predecessor’s assets such that there was
privity between them.5 Id. Thus, American Equipment’s statement was dicta, not a holding. But
even viewing American Equipment as persuasive authority for the proposition that a transfer of
assets can create “privity” between two entities, the Court is not convinced by ASI’s argument
because American Equipment is materially distinguishable from the instant case, as explained
below.

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Notably, ASI represents CAL/DSI as having been the “assignee for the benefit of [SVTC’s]
creditors” when SVTC was dissolved. Mot. at 3. Under well settled common law, an assignee who
serves this function temporarily attains “title” to all of the liquidating company’s assets in order to
sell off the assets for the benefit of the creditors. Clark v. Williard, 294 U.S. 211, 214 (1935);
Dambmann v. White, 48 Cal. 439, 450 (1874). Thus, the Court assumes that CAL/DSI had title of
SVTC’s assets and equipment, which is supported by evidence in the record. See Zarian Decl.
Exhibit G at 239 (deposition testimony of CAL/DSI’s representative stating that the “assignee” had
received title to SVTC’s assets). As assignee, it was CAL/DSI’s job to auction off SVTC’s assets
and equipment in order to satisfy SVTC’s creditors. The Court finds that any asset transaction
between CAL/DSI and TSI made as part of this auctioning process cannot serve as the basis for
establishing privity between CAL/DSI and TSI. This is because this factual scenario is sharply
different from the facts in American Equipment. In American Equipment, the court found privity
because there was a wholesale and direct transfer of assets from one company who used those
assets to another company who was using those very same assets such that the second company
was basically continuing the business of the first company. American Equipment, 630 F.2d at 546
n.1. Indeed, the American Equipment court emphasized the “sufficient continuity in property
ownership and personnel” between the two companies as important to its reasoning. Id.; see also
Brunswick Corp. v. Chrysler Corp., 408 F.2d 335, 338 (7th Cir. 1969) (holding that direct transfer

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The American Equipment court reached this tentative conclusion in the context of a case which
required the court to decide whether a consent decree, which adjudged a patent to be valid and
infringed and which was entered between the predecessor company and the plaintiff, would be res
judicata on the instant patent infringement claim against the defendant corporation. Id. The court’s
holding was that the consent decree could be accorded res judicata effect on the instant claim
between the plaintiff and the defendant. Id. at 545.
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United States District Court
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of all business assets from predecessor company who conducted a certain business to successor
company who conducted same business meant successor was in privity with predecessor with
respect to consent decree entered against precedessor for res judicata purposes, and noting
“Chrysler purchased from The West Bend Company the entire business that was devoted to the
production of ‘Tiger Shark 800’ outboard motors and the inboard-outboard stern drives used with
such motors. Furthermore, The West Bend Company, . . . transferred both its manufacturing and
sale facilities and also its personnel to Chrysler. It follows that Chrysler does stand in the shoes of
The West Bend Company with respect to the decree.”). Here, in contrast to American Equipment
and Brunswick, CAL/DSI’s position as an assignee for the benefit of SVTC’s creditors means that
there was no direct transfer of assets from a company that actually used the assets to a successor
company that would also use the assets in a similar business capacity such that the successor
company was basically “standing in the shoes” of the successor company. Rather, the transfer of
assets occurred through an intermediary, CAL/DSI, who simply transferred the assets from SVTC
to TSI as part of an auctioning process on behalf of SVTC’s creditors. There is nothing in the
record which leads this Court to conclude that TSI was standing in the shoes of CAL/DSI as a
result of the transfer of assets. Thus, this case is materially distinguishable from those cases which
conclude that privity can be established based on a “transfer of assets.”
The Court further notes that it is unconvinced by ASI’s argument that there is privity
between CAL/DSI and TSI because they had “aligned interests” when the asset transaction
occurred. Mot. at 11. To find privity simply because both parties mutually benefited from the asset
transfer would create a rule that privity is established whenever parties engage in a mutually
beneficial business transaction. Under such a rule, all entities that transact with parties bound by an
injunction would presumably be bound by the injunction. Such a rule does not comport with the
Supreme Court’s instruction that courts may not extend the reach of an injunction “so broad as to
make punishable the conduct of persons who act independently and whose rights have not been
adjudged according to law.” Regal Knitwear Co. v. NLRB, 324 U.S. 9, 13 (1945); see also Lynch v.
Rank, 639 F.Supp. 69, 73 (N.D. Cal. 1985) (“to be subject to the Court’s contempt powers, there
must at the very least exist a strong identity of interests between the enjoined defendant and the
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ORDER DENYING PLAINTIFF’S REQUEST FOR TSI AND NORTHALL TO SHOW CAUSE

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would-be contemnor . . . there must exist a commonality of incentives and motivations between the
[two parties]. Plaintiffs have made no real showing that the interests and motivations of the [two
parties] are identical, or even overlapping.”) (emphasis added); c.f. Friedman, 76 Fed. R. Serv. 3d
at *13 (holding that a mere “business relationship does not translate to a finding that [non-party] is
legally identified with [the party bound by the order] for contempt purposes”). ASI cites no case
law which holds that a transfer of assets like the one in this case suffices to prove that a third
party’s interests are so aligned with the party bound by a judgment such that it is fair to hold the
third party bound by the judgment. Nor has the Court found any law holding that a transfer of
assets from an assignee to buyers for the purpose of attaining money for creditors creates privity
between the assignee and the buyer. Accordingly, the Court finds that any alleged alignment of
interests between CAL/DSI and TSI during the asset transaction is insufficient to constitute privity
in this case.

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Finally, the Court holds that the same reasoning applies with respect to the sale of the San
Jose Facility to Northall, see Mot. at 4 (“CAL/DSI caused the real property and facility comprising
the San Jose Facility to be sold”). Again, there, CAL/DSI simply functioned as an intermediary as
assignee to the property, and no privity was established between CAL/DSI and Northall based on
this transfer of property.

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In sum, the Court finds that ASI has failed to make the requisite showing either under
Peterson or Class Plaintiffs regarding why TSI and Northall should be bound by the injunction.

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ASI has not shown clear and convincing evidence that TSI and Northall
are “successors in interest” to CAL/DSI.

The Court now addresses ASI’s alternative argument that TSI/Northall are bound by the

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within the description of persons in active concert or participation with them in the violation of an

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injunction. If they are, by that fact they are brought within scope of contempt proceedings by the
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rules of civil procedure . . .” Regal Knitwear, 324 U.S. at 14 (referring to Federal Rule of Civil
Procedure 65(d) which states that injunction orders bind only the parties and their officers, agents,
servants, employees, and attorneys, and those in active concert or participation with them)6; see
also Red 1 Investments, Inc. v. Amphion Intern. Ltd., No. CV-06-279-LRS, 2007 WL 3348594 at
*2 (E.D. Wash. 2007) (citing Regal and holding that “successors in interest to parties bound by the
order” can be held in civil contempt of the order); FilmKraft Productions India Pvt Ltd. v.
Spektrum Ent., Inc., No. 2:08-CV-1293 JCM GWF, 2011 WL 2791477 at *1 (D. Nev. 2011)
(same).

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Here, ASI does not argue that, under Regal, TSI/Northall are successors in interest to
CAL/DSI – the party bound by the order – by virtue of the fact that CAL/DSI has sought to evade
the injunction through TSI/Northall or because TSI/Northall acted in concert with CAL/DSI to
violate the injunction. Regal, 324 U.S. at 14. Rather, ASI states in a conclusory fashion that
“TSI/Northall is a successor in interest to the assets and equipment that are subject to the
injunction. There is no dispute here that TSI acquired most of the assets that were located at the
San Jose Facility [] and which contain or once contained ASI’s intellectual property.” Mot. at 11
(emphasis added). This statement is the entire argument ASI offers in support of the notion that
TSI/Northall should be bound by the injunction as successors in interest. Presumably, ASI intends
to argue that TSI/Northall are successors in interest to CAL/DSI, rather than “to the assets and
equipment,” by virtue of the alleged purchase of assets and equipment from CAL/DSI. Although it
is unclear precisely what “assets and equipment” ASI refers to, the Court assumes that ASI
references the sale of SVTC’s assets and equipment sometime after November 1, 2012.7 Because
ASI claims that TSI, and not Northall, made this purchase, see Mot. at 3, the Court concludes this
argument does not provide a basis to find that Northall was a successor in interest to CAL/DSI.

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No Ninth Circuit cases have relied on this holding in Regal to find successor liability in the
contempt context.
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ASI does not reference the real property sale of the San Jose Facility in making this argument
because when discussing the assets, it states, “There is no dispute here that TSI acquired most of
the assets that were located at the San Jose Facility.” Mot. at 11.
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Thus, the Court restricts its analysis to whether ASI has shown that TSI was a successor in interest
based on this transaction. As explained below, the Court finds that ASI’s argument fails. As such,
neither Northall nor TSI can be bound by the injunction as successor in interest to CAL/DSI.

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There is no Ninth Circuit case law holding that nonparties are deemed to be “successors in
interest” to a party bound by an injunction, and thus that the nonparties are bound by the injunction
themselves for contempt purposes, when the nonparty purchases assets from an enjoined party.
However, there is some case law suggesting that a transfer of assets can create “successor liability”
in other contexts. For example, in Golden State Bottling Co. v. NLRB, 414 U.S. 168 (1973), which
ASI cites, Mot. at 10, the United States Supreme Court held that a company that purchases the
assets of another company who is liable under the National Labor Relations Act may be liable
under the NLRA as a successor employer if the successor is the “continuing business enterprise” of
the first employer. Id. at 180. There, Golden State Bottling Company had discharged a sales
employee for engaging in protected union activities in violation of the NLRA. Id. at 170. The
National Labor Relations Board ordered the company and its “successors and assigns” to reinstate
the employee with backpay. Id. at 171. Subsequently, Golden State Bottling Company sold its
entire business to All American Beverages, Inc., and the employee initiated a backpay liquidation
proceeding before the NLRB against both companies. Id. The NLRB found that All American was
a successor in interest that was required to reinstate the employee and was jointly and severally
liable with Golden State Bottling Company for the backpay award. Id. at 171-72. The Ninth Circuit
upheld the NLRB’s finding, and the United States Supreme Court affirmed. Id. at 172. Critically,
the Supreme Court rejected All American’s argument that Fed. R. Civ. P. 65(d) barred enforcement
of the NLRB’s order against a successor, holding that “a bona fide purchaser, acquiring, with
knowledge that the wrong remains unremedied, the employing enterprise which was the locus of
the unfair labor practice, may be considered in privity with its predecessor for purposes of Rule
65(d).”8 Id. at 180. There is also out of circuit authority suggesting that successor liability can be
found in similar circumstances as those presented in Golden State, i.e., where the successor bought

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ASI cites Golden State for the proposition that “[a] successor in interest is subject to an injunction
entered against his predecessor.” Mot. at 10. However, as explained above, Golden State does not
stand for any such broad proposition.
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the entire business directly from the predecessor company. See Herrlein v. Kanakis, 526 F.2d 252
(7th Cir. 1975) (holding, in case involving direct transfer of all of predecessor company’s assets to
successor company, that successor in interest could be held in contempt for violating an injunction
entered against the predecessor company, but ultimately finding no successor liability in the case at
hand because the transfer of assets was not made to evade the injunction).

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Here, for substantially the same reasons as those set forth above as to why ASI’s “privity”
argument fails, the Court concludes that ASI’s “successor in interest” argument fails. This case is
materially distinguishable from cases like Golden State and Herrlein because those cases held that
the buying entities could be considered “successors in interest” subject to an order or injunction
that bound their predecessors in situations where the successor had bought the entire business
directly from the predecessor company that was using the business assets. Here, even assuming that
ASI has proven with clear and convincing evidence that TSI was the entity that bought the assets,
CAL/DSI’s position as an assignee for the benefit of SVTC’s creditors means that there was no
transfer of assets from a company that actually used the assets to a successor company that would
also use the assets in a similar business capacity. Rather, the transfer occurred through an
intermediary, CAL/DSI, who merely transferred the assets from SVTC to TSI as part of an
auctioning process for the benefit of SVTC’s creditors.9

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The Court finds further support for its conclusion in two other respects. First, it is supported
by the Supreme Court’s reasoning in Golden State that a company could only be brought within the
scope of Fed. R. Civ. P. 65(d) as a successor in interest under Regal if it was substantially the same
business enterprise as the predecessor company, i.e. a “continuing business enterprise,” such that
there was a “relationship of dependence” between the two. Golden State, 414 U.S. at 180. The
Court’s reasoning suggests that some kind of close connection or relationship is required to
establish successor liability. In the case at hand, while there is a strong argument that there is a
relationship of dependence between SVTC and TSI, given that TSI allegedly bought substantially
all of SVTC’s assets and equipment, there is no showing of any sort of dependence between

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The Court also notes that the facts of Golden State are highly specific to the labor context, and the
Court has found no cases which apply Golden State to find successor liability outside of the labor
and employment context.
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CAL/DSI and TSI. Second, the Court’s finding is supported by language in the Supreme Court’s
Regal decision which suggests that a transfer of assets creates successor liability only in situations
where the transfer of assets has been made in order to evade an injunction. See Regal, 324 U.S at
14-15 (“Not only is such an injunction enforcible by contempt proceedings against the corporation,
its agents and officers and those individuals associated with it in the conduct of its business, but it
may also, in appropriate circumstances, be enforced against those to whom the business may have
been transferred, [] as a means of evading the judgment . . .”); id. at 14 (“[s]uccessors and assigns
may [] be instrumentalities through which [a] defendant [who is bound by an order] seeks to evade
[the] order . . . If they are, by that fact they are brought within scope of contempt proceedings by
the rules of civil procedure . . .”). Here, CAL/DSI could not have transferred the equipment and
assets to TSI as a means to evade the judgment because the transfer occurred in late 2012, before
the April 2, 2013 injunction was entered by this Court. See Herrlein, 526 F.2d at 255 (holding that
direct transfer of all of predecessor company’s assets to successor did not mean that successor in
interest could be held in contempt for violating injunction entered against predecessor because
transfer of assets occurred before entry of the injunction and thus could not have been a means
used by the predecessor to evade the injunction). Overall, the Court concludes that the transfer of
assets between CAL/DSI and TSI does not suffice to prove that TSI is a “successor[s] in interest”
to CAL/DSI. 10

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Because this Court finds that ASI has not shown clear and convincing evidence that
TSI/Northall either aided and abetted CAL/DSI, are “legally identified” with or in privity with
CAL/DSI, or are successors in interest to CAL/DSI, the Court holds that TSI/Northall are not
bound by this Court’s preliminary injunction. As such, the Court need not reach the question

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TSI/Northall cite a rule that asset purchasers are not liable as “successors in interest” for the
seller’s debts and liabilities unless one of four exceptions applies. Opp’n at 9-10 (citing Louisiana–
Pacific Corp. v. Asarco, Inc., 909 F.2d 1260, 1263-64 (9th Cir. 1990), overruled on other grounds
by Atchison, Topeka and Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358 (9th Cir. 1997),
and Gee v. Tenneco, 615 F.2d 857 (9th Cir. 1980)). However, this rule is inapplicable here because
these cases apply this rule either in the context of holding a successor company liable for products
liability or in the context of deciding the issue of corporate successor liability under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980. TSI/Northall
cite no cases which apply this rule in the context of deciding whether a nonparty can be held in
contempt for violating an injunction.
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whether TSI/Northall received actual notice of the injunction order or actually violated the terms of
the injunction order through their actions. See Fed. R. Civ. P. 65(d)(2) (injunction orders bind
“only the following who receive actual notice of it . . .”); Reno Air Racing, 452 F.3d at 1130
(holding that civil contempt “consists of a party’s disobedience to a specific and definite court
order by failure to take all reasonable steps within the party’s power to comply.”)

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The Court notes here that in reaching its decision, it has not ignored ASI’s allegation in its
briefing that it would be unfair to let TSI/Northall off the hook in this case when TSI/Northall was
aware of the injunction and moved assets subject to the injunction out of the San Jose Facility, thus
interfering with ASI’s retrieval of assets that may have contained its intellectual property. See
generally Mot. and Reply. Even assuming that ASI has proven that TSI/Northall knew about the
injunction and moved the assets in question,11 such a showing is simply not enough under the case
law to hold a nonparty bound by an injunction without a showing of privity or active concert with
the bound party, as discussed above. Further, while ASI claims TSI/Northall acted unfairly by not
intervening in the action to attain clarification whether TSI/Northall were subject to the injunction
before allegedly violating its terms, Reply at 4-5, ASI’s argument is foreclosed by Supreme Court
law. In Martin v. Wilks, 490 U.S. 755, 763 (1989), the Supreme Court held that the fact that a third
party, such as TSI/Northall, knew of an existing lawsuit but deliberately chose not to intervene
does not mean that he is bound by the judgment. The Court held that the third party is under no
obligation to intervene, and that the prior judgment is simply void as to the non-joined third party.
Id. at 762-65.
IV.

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TSI/NORTHALL’S OBJECTIONS TO ASI’S DECLARATIONS
ASI submitted two declarations in support of its motion. ECF No. 79-9 (Declaration of

John Zarian); ECF No. 79-1 (Declaration of Doug Hackler). TSI/Northall present 45 objections to
various parts of the Zarian and Hackler declarations. See Opp’n. at 11-25. However, TSI/Northall
provide no argument or explanation in support of any of their objections. Id. When faced with
similarly boilerplate objections without supporting explanations, courts have held that it would

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Northall claims that it made “extraordinary efforts” to cooperate with ASI and to allow ASI to
remove any equipment that may contain ASI’s intellectual property from the San Jose Facility.
Opp’n at 1, 4-5.
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“not address boilerplate evidentiary objections that the parties themselves deem unworthy of
development.” Amaretto Ranch Breedables v. Ozimals, Inc., 907 F.Supp.2d 1080, 1092 (N.D. Cal.
2012) (summarily overruling the objections); see also Californians for Disability Rights, Inc. v. Cal
Dep’t of Transp., 249 F.R.D. 334, 349-50 (N.D. Cal. 2008) (overruling defendants’ evidentiary
objections where objections were “simply boilerplate, and include absolutely no explanation as to
why the testimony in question is objectionable. The summary, vague nature of these objections is
grounds alone for the court to deny them. . . . The Court declines the defendants’ invitation to
analyze objections that defendants did not themselves bother to analyze, and the objections are
overruled on those grounds alone.”); Dukes v. Wal-Mart, Inc., 222 F.R.D. 189, 199 (N.D. Cal.
2004) (“Defendant’s attempt to assert these objections without providing any individualized
discussion is procedurally defective. The objections therefore merit summary denial on the ground
that they are unduly vague.”); Cmtys. Actively Living Indep. & Free v. City of L.A., No. CV09287CBM (RZX), 2011 WL 4595993, at *8 (C.D. Cal. Feb. 10, 2011) (summarily overruling
objections while holding that “[i]t is not the Court’s responsibility to attempt to discern the City’s
grounds for objecting to evidence submitted by Plaintiffs where the City merely repeats the same
categorical objections but provides little to no explanation as to why the subject evidence is
objectionable.”) This Court agrees with these other courts that this Court is not obligated to rule on
a party’s objections when that party provides no argument or analysis regarding those objections.
Accordingly, the Court OVERRULES all of TSI/Northall’s objections.

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Further, the Court notes that it would overrule TSI/Northall’s objections as moot anyway,
as the Court does not rely, in resolving this motion, on the material to which TSI/Northall objects.
Thus, the Court also OVERRULES all of the objections, except Objection Number 18, as moot.
The Court already SUSTAINED Objection Number 18, see supra page 9 n.4.
VI.

CONCLUSION
For the foregoing reasons, the Court DENIES ASI’s request for an order to show cause.

Because the Court finds no basis to issue contempt sanctions against TSI/Northall, the Court also
DENIES ASI’s request for sanctions against TSI/Northall and for reasonable attorneys’ fees.

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IT IS SO ORDERED.

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Dated: October 31, 2013

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LUCY H. KOH
United States District Judge

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