Karoun Dairies, Inc. v. Karoun Dairies, Inc. et al

Filing 319

ORDER granting Defendants/Counterclaimants' 314 Motion for Summary Judgment in its entirety. The Court finds the stay no longer necessary and herewithvacates the stay. Case Management Conference set for 8/1/2014 03:00 PM in Courtroom 3B before Judge Anthony J. Battaglia. Signed by Judge Anthony J. Battaglia on 7/8/14. (cge)

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1 2 3 4 5 6 7 8 9 UNITED STATES DISTRICT COURT 10 SOUTHERN DISTRICT OF CALIFORNIA 11 12 KAROUN DAIRIES, INC., a California corporation, 13 Plaintiff, 14 v. 15 KARLACTI, INC., a Delaware corporation, et al., 16 17 Defendants. ) ) ) ) ) ) ) ) ) ) ) Case No.: 08cv1521 AJB (WVG) ORDER GRANTING DEFENDANTS/COUNTERCLAIM ANTS’ MOTION FOR SUMMARY JUDGMENT [Doc. No. 314] 18 19 20 21 22 23 24 25 26 27 28 The matter comes before the Court on Defendants/Counterclaimants’ motion for summary judgment on Plaintiff’s Fifth Affirmative Defense (the “Oral Agreement Defense”) and Inheritance Theory Defense. (Doc. No. 314.) Defendants seek the Court’s ruling as a matter of law that Plaintiff’s Fifth Affirmative Defense is time barred and/or fails on the merits and Plaintiff’s Inheritance Theory Defense has been waived for failing to raise in a timely matter and/or will cause undue prejudice if allowed at this stage of the proceedings. The matter was taken under submission on July 2, 2014. After due consideration of the Parties’s briefs filed in support and opposition, the Court GRANTS the motion for summary judgment. 1 08cv1521 1 I. BACKGROUND 1 2 A. Relevant Factual Background 3 This trademark infringement action arises from a family dispute over the right to 4 use a trademark in the United States that was previously established in the family 5 business in Lebanon. Plaintiff was first to use and register the mark in the United States 6 and filed this infringement action against Defendants. Defendants filed a counterclaim 7 alleging that Plaintiff is the infringer and requesting cancellation of Plaintiff’s registered 8 mark. 9 Plaintiff’s founder, Anto Baghdassarian (hereinafter “Anto”) and Defendant Ara 10 Baghdassarian (hereinafter “Ara”) are brothers. Anto and Ara both worked for many 11 years in the family dairy business in Lebanon (“Karoun Lebanon”). Karoun Dairies is a 12 trade name which has been used in the family business since 1931 and is registered in 13 Lebanon. Karoun Lebanon was well known in the Middle East and exported its products 14 as far as Paris and London.2 (Doc. No. 37 at 10-11.) In approximately 1990, after the 15 death of his father and due to civil unrest in Lebanon, Anto sold his interest in Karoun 16 Lebanon to Ara, and moved to the United States. While Ara asserts that they entered 17 into an agreement that Anto would not enter the dairy business, Anto disputes this. 18 Additionally, Anto asserts that the two brothers entered into an Oral Agreement dictating 19 that Ara would have the exclusive right to use the Karoun mark in Lebanon in connec- 20 tion with the operation of Karoun Lebanon and Anto would have the right to use the 21 mark for any and all purposes in all other geographic areas. (Doc. No. 316 at 2.) 22 23 24 Along with their motion for summary judgment, Defendants request this Court to take judicial notice of eight (8) exhibits filed in support. (Doc No. 314-3, at 2-3.) 25 Exhibits A through F are public court records in the action between the Parties in Los Angeles. The Court takes judicial notice of Exhibits A through F. Specifically, the 26 Court takes judicial notice of the existence of these public records, the Court does not take notice of the truth of the matters stated therein. The Court declines to take judicial 27 notice of Exhibits G through H where the Court did not rely on them in adjudicating this motion. 1 28 2 The factual allegations from pleadings referenced herein are not disputed. 2 08cv1521 1 Subsequently, Ara continued to manage Karoun Lebanon, which proceeded to 2 expand its business. Karoun Lebanon participated in local and international exhibitions, 3 and advertised in international directories and journals. (Doc. No. 37 at 11.) In 2004 or 4 2005, Karoun Lebanon had to temporarily suspend production in Lebanon during a 5 military conflict; however, it continued to use the Karoun mark through its exclusive 6 licensees Defendants Karoun Dairies, Inc., a Canadian corporation (“Karoun Canada”), 7 and Karlacti, Inc., a Delaware corporation (“Karlacti”). 8 9 Plaintiff is a corporation organized and existing under the laws of the State of California. Anto named his business after the family business in Lebanon and marketed 10 his products to Middle Eastern emigrants in California and elsewhere in the United 11 States. In 1993, Plaintiff registered the trademark “Karoun Dairies” and in 2003, it 12 registered the mark “Karoun’s California Cheese, a Whole Milk Cheese.” 13 In June 2006, Ara’s counsel filed a trademark application to register the Karoun 14 mark in the United States on behalf of Karoun Lebanon. Plaintiff objected and de- 15 manded Ara withdraw the application. Ara refused and asserted that Karoun Lebanon 16 intended to expand its business into the United States under the Karoun name and 17 demanded that Plaintiff cease and desist using the name. Ara argued that Anto had sold 18 his right to use the mark to Ara when he sold him his interest in the family business. In 19 May 2007, Ara’s trademark application was abandoned. (See Doc No. 27 at 4.) 20 B. 21 In August 2008, Plaintiff filed a complaint against Ara, Karlacti and Karoun Relevant Procedural Background 22 Canada. (Doc. No. 1.) Plaintiff amended its Complaint twice in 2009. The operative 23 complaint claimed trademark infringement under the Lanham Act and federal common 24 law, false designation of origin and federal unfair competition, dilution, and unfair 25 competition under California law. Defendants filed a counterclaim for false designation 26 of origin and federal unfair competition under the Lanham Act, cancellation of trademark 27 registrations, and accounting. (Doc. No. 37.) Plaintiff replied to the counterclaims by 28 asserting nineteen (19) affirmative defenses. The Fifth Affirmative Defense is entitled 3 08cv1521 1 “Breach of Oral Agreement” in which Plaintiff alleges that current attempts by Ara and 2 his corporate entities to challenge Anto’s use of the Karoun mark in the United States are 3 in breach of the Oral Agreement. (Doc. No. 89 at 8.) 4 In November 2010, Plaintiff sought leave to file a Third Amended Complaint 5 (“TAC”) seeking the Court’s permission add Anto as a new party and to add a new claim 6 for breach of the alleged Oral Agreement. (Doc. No. 38.) This Court denied that 7 motion, finding Plaintiff could have stated the claim when the lawsuit was first initiated, 8 lacked diligence, and failed to show good cause to allow amendment even under the 9 liberal standard of Federal Rule of Civil Procedure 15. (Doc. No. 220 at 18-20.) 10 Thereafter, Anto, in his individual capacity, filed an action in the Superior Court of 11 California, County of Los Angeles asserting the breach of Oral Agreement claim against 12 Ara. Ara removed to the district court for the Central District of California. In ruling on 13 Ara’s motion to dismiss, District Judge Stephen V. Wilson found the claim to be 14 governed by California’s statute of limitations rather than Lebanese law. Accordingly, 15 Judge Wilson dismissed Anto’s claim finding it to be time-barred. Antranik 16 Baghdassarian v. Ara Baghdassarian, et al., 11-cv-10285 SVW (Jcx) (Feb. 16, 2012) 17 (Doc. No. 314-3, Ex. E.). Anto appealed and the Ninth Circuit Court of Appeals3 18 reversed Judge Wilson’s ruling after finding the district court lacked jurisdiction where 19 the Complaint did not state an amount in controversy. The Central District case has been 20 remanded back to state court.4 (Id. at Ex. F.) 21 As to the purported Inheritance Theory Defense, Plaintiff claims that Anto 22 inherited a right to use the Karoun mark when Ohannes passed away in 1989. Plaintiff 23 first alluded to this theory in its April 2011 Expert Report of Pierre El Khoury. This 24 theory was also mentioned in Plaintiff’s reply to Defendant’s motion for summary 25 judgment filed on June 10, 2011. (Doc. No. 203 at 7.) On March 13, 2014, the Court 26 27 28 On September 3, 2013 this court stayed this case pending the Ninth Circuit decision in the interests of judicial economy. (Doc. No. 292.) 3 4 The state court will be holding a hearing on Ara’s demurrer on July 11, 2014. 4 08cv1521 1 held a status conference and Plaintiff expressed the intent to rely on the Inheritance 2 Theory as a defense at trial. On September 29, 2012, this Court granted Defendant’s motion for summary 3 4 judgment and denied Plaintiff’s motion for summary judgment. (Doc. No. 223.) 5 Accordingly, the only remaining issues to be determined are those raised by the counter- 6 claims and the defenses to the counterclaims. On April 23, 2014, this Court held a case 7 management conference where the Parties alerted the Court to issues suitable for 8 summary judgment before proceeding to trial. The Court ordered briefing on: (1) 9 whether the alleged Inheritance Theory defense has been waived as an affirmative 10 defense and (2) whether the alleged Oral Agreement, if valid, is barred by the statute of 11 limitations. (Doc. No. 311.) Defendants filed their motion on June 2, 2014. (Doc. No. 12 314.) Plaintiff has filed a response. (Doc. No. 316.) 13 II. 14 LEGAL STANDARD Summary judgment is appropriate if the “pleadings, depositions, answers to 15 interrogatories, and admissions on file, together with the affidavits, if any, show that 16 there is no genuine issue as to any material fact and that the moving party is entitled to 17 judgment as a matter of law.” Fed. R. Civ. P. 56(e) (West 2006). A dispute about a 18 material fact is genuine “if the evidence is such that a reasonable jury could return a 19 verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 20 106 S.Ct. 2505 (1986). In considering the motion, the court must examine all the 21 evidence in the light most favorable to the non-moving party and “all justifiable infer- 22 ences are to be drawn in his favor.” Id. at 255, 267. 23 When the moving party does not bear the burden of proof, summary judgment is 24 warranted by demonstration of an absence of facts to support the non-moving party's 25 case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548 (1986). Summary 26 judgment must be granted if the party responding to the motion fails “to make a suffi- 27 cient showing on an essential element of her case with respect to which she has the 28 burden of proof.” Id. at 323. 5 08cv1521 1 III. DISCUSSION 2 A. Inheritance Theory Defense 3 Plaintiff’s inheritance theory defense alleges that Anto inherited a right to use the 4 Karoun trademark when Ara and Anto’s father, Ohannes, passed away in 1989. Defend- 5 ants seek dismissal of this defense arguing Plaintiff waived any defense based on Anto’s 6 alleged inherited right. To resolve this issue, the Court must determine (1) whether 7 Plaintiff waived this Inheritance Theory Defense by failing to assert it in a timely manner 8 and (2) if the Inheritance Theory Defense was timely, whether it would prejudice the 9 Defendants if Plaintiff is allowed to proceed on this theory. 10 1. 11 In responding to a pleading under Federal Rule 8(c) a party must state any Untimeliness 12 affirmative defense in a timely manner or it is deemed waived. In re Adbox, Inc., 488 13 F.3d 836, 841 (9th Cir. 2007). Here, Plaintiff’s responsive pleading (Doc. No. 89) does 14 not mention the Inheritance Theory nor was it pleaded as an affirmative defense to the 15 counterclaims. However, the Ninth Circuit has liberalized Rule 8(c)’s pleading require- 16 ment to allow a party to assert a defense for the first time in a motion for summary 17 judgment if the delay does not prejudice the other party. Magana v. Com. of the N. 18 Mariana Islands, 107 F.3d 1436, 1446 (9th Cir. 1997). 19 Plaintiff’s motion for summary judgment, filed on May 16, 2011 (Doc. No. 163), 20 did not raise the inheritance theory as a defense to the counterclaims. Instead, Plaintiff 21 first alluded to the Inheritance Theory in the expert report of Pierre El Khoury, which 22 was served on Defendants in April 2011. It was not until June 10, 2011, in Plaintiff’s 23 Reply in support of its motion for summary judgment, that Plaintiff first mentioned that 24 Anto had inherited a right to use the Karoun mark. Moreover, it was not until the March 25 13, 2014 status conference when Plaintiff first indicated its intent to rely on this theory 26 as an affirmative defense. 27 28 Plaintiff argues that they raised the Inheritance Theory Defense during the summary judgment stage in 2011, specifically in its reply in support of its motion, 6 08cv1521 1 therefore their right to raise the defense has not been waived. Plaintiff further argues 2 that the issue is not which summary judgment document raises the defense as long as its 3 assertion at the summary judgment stage does not prejudice the opposing party. Paine v. 4 City of Lompoc, 2675 F.3d 975, 980 n.1 (9th Cir. 2001). 5 Though courts in this circuit follow the liberal approach and would allow parties 6 to raise various affirmative defenses at any time up to and including trial so long as the 7 other party was not prejudiced by the delay,5 this Court finds Plaintiff’s lack of diligence 8 inexcusable. In the instant case, Plaintiff had replied to counterclaims by asserting 9 nineteen other affirmative defenses (Doc. No. 89). Moreover, Plaintiff had sufficient 10 time to raise the Inheritance Theory Defense at a much earlier stage as the event which 11 purportedly gave rise to Anto’s alleged inheritance right (Ohannes passing) occurred in 12 1989, more than two decades ago. In Kaufman v. Unum Life Insurance Company of 13 America, the court explained: 14 15 16 17 18 19 20 21 22 “We recognize that in some cases, the defense may only become apparent after discovery, and therefore we are not stating that there is a blanket rule that the defense may not be asserted after discovery has been conducted. Without delving into the merits, however, we note that Unum bases its statute of limitations defense on the basis of a letter that Kaufman sent to Unum, questioning Unum's decisions regarding his benefit calculations. We do not see how that letter, if it is properly the basis of a statute of limitations defense, could only be discovered four years after the suit was filed, two years after discovery began, and after the parties were prompted to file a pretrial order. We conclude, therefore, that Unum has waived its statute of limitations defense due to the prejudice Kaufman has suffered in having to confront the defense too late in the time line of the litigation.” 23 24 See Panaro v. City of North Las Vegas, 432 F.3d 949, 951 (9th Cir. 2006) (holding the District Court did not err in permitting defendants to raise a new defense of exhaustion of administrative remedies at the summary judgment stage because the 26 affirmative defense was not available until the summary judgment stage); Camarillo v. McCarthy, 998 F.2d 638, 639 (9th Cir. 1993) (“In the absence of prejudice, an 27 affirmative defense may be raised for the first time at summary judgment”); Rivera v. Anaya, 726 F.2d 564, 566 (9th Cir. 1984) (finding employer’s failure to raise the 28 affirmative defense of the statue of limitations in response to the first pleading did not waive the right to use that defense in a motion for summary judgment). 5 25 7 08cv1521 1 834 F. Supp.2d 1186, 1193 (D. Nev. 2011). Like Kaufman, Plaintiff here had many 2 opportunities to properly raise the inheritance defense. However, Plaintiff failed to do so 3 and waited until the “11th hour” instead of the earliest possible moment to properly raise 4 it. See Venters v. City of Delphi, 123 F.3d 956 (7th Cir. 1997) (refusing to consider the 5 defense, regardless of its actual merits, because the defense was only brought in a reply 6 memorandum to a motion for summary judgment). 7 Additionally, the Court finds that as a result of the delay, Defendants will likely 8 suffer prejudice, further supporting the conclusion that Plaintiff should be precluded 9 from asserting the Inheritance Theory Defense. 10 2. 11 Courts in the Ninth Circuit find that despite the untimeliness of certain defenses, There Would Be Substantial Prejudice on Defendants 12 absent prejudice, there is no waiver. See e.g., See, e.g., Paine v. City of Lompoc, 265 13 F.3d 975, 981 n. 1 (9th Cir.2001) (finding no waiver where absolute immunity raised as 14 affirmative defense for first time in motion for summary judgment and plaintiff did not 15 argue he suffered prejudice due to delay in assertion of such defense); Sharer v. Oregon, 16 481 F.Supp.2d 1156, 1165 (D. Or. 2007) (finding no waiver where statute of limitations 17 raised as affirmative defense for first time in motion for summary judgment and plaintiff 18 made no showing of prejudice); Scott v. Garcia, 370 F. Supp.2d 1056, 1065 n.8 (S.D. 19 Cal. 2005) (finding no waiver where statute of limitations raised as affirmative defense 20 for first time in motion for summary judgment and plaintiff had been placed on notice of 21 defense and had opportunity to conduct discovery); Petteruti v. United States, 2003 WL 22 22461990, *3 (N.D. Cal. 2003) (finding no waiver where statute of limitations raised as 23 affirmative defense for first time in motion for summary judgment and plaintiff did not 24 claim prejudice); Chabot v. Washington Mutual Bank, 369 B.R. 1, 14 (Bankr. D. 25 Mont.2007) (finding no waiver where statute of limitations raised as affirmative defense 26 for first time in motion for summary judgment and plaintiff failed to argue or show 27 prejudice). Courts in this district have also held that absent prejudice, a court has 28 8 08cv1521 1 discretion to allow defendant to plead affirmative defense. See Fleming v. Coverstone, 2 2011 WL 902117, *6 (S.D. Cal. 2011). 3 “Prejudice must be tangible . . . mere delay is insufficient to demonstrate preju- 4 dice.” Ledo Financial Corp v. Summers, 122 F.3d 825, 827 (9th Cir. 1997). In Ledo, the 5 district court rejected Ledo’s argument that the FDIC had waived its argument by failing 6 to file a timely response. Id. The court concluded that the delay was inadvertent and 7 non-prejudicial since FDIC was unaware that it had not filed an answer and consequently 8 did so within two days of being informed. Id. The district court concluded that there was 9 no tactical advantage gained by the late filing and Ledo failed to demonstrate how it had 10 been prejudiced by the delay. Id. 11 The facts of this case are distinguishable from Ledo and to the contrary, lend 12 themselves to a showing of prejudice. Unlike Ledo where the plaintiff was unaware that 13 it had not filed an answer, here Plaintiff not only filed an answer but also never sought to 14 amend its pleadings to raise the inheritance defense to the counterclaims. Although the 15 inheritance theory was mentioned in Plaintiff’s Reply in support of its Motion for 16 Summary Judgment, it was never argued as an affirmative defense. Moreover, it was 17 never raised in the pre-trial order. Despite the fact that the event which purportedly gave 18 rise to Anto’s alleged inheritance right occurred in 1989, more than two decades ago, 19 Plaintiff failed to plead it as an affirmative defense in this action. 20 The case before the court is more in line with Lopez v. G.A.T. Airline Ground 21 Support, Inc. 2010 WL 2839417 (S.D. Cal. 2010). The court in Lopez found that 22 “defendants' general denial of liability under the FLSA in the Answer was insufficient to 23 put plaintiffs on notice of the particular defense.” Id. at *8. Plaintiffs in Lopez did not 24 have notice of the defense until after the parties had already taken depositions and 25 produced requested documents. Thus, Lopez found plaintiffs were prejudiced by their 26 inability to conduct discovery on the issue. The circumstances in Lopez are similar to the 27 instances in the current case. 28 9 08cv1521 1 Here, Plaintiff tries to argue that Defendants have been aware of the inheritance 2 rights issue for three years, starting in April 2011 with the El Khoury Report and thus 3 Defendants’ argument that they would be prejudiced by their inability to conduct 4 discovery is baseless. However, it is important to note that all of the times the inheri- 5 tance defense was mentioned in this case came after the close of discovery on April 4, 6 2011. Defendants argue they had no opportunity to question Anto or other supposed 7 heirs about this inheritance theory during deposition, or conduct written discovery. 8 Further, Defendants claim that since this theory was not raised in the pleadings or 9 discovery, they had no idea the inheritance theory would be asserted by Plaintiff as an 10 affirmative defense. Indeed, it is not Defendants’ responsibility to clarify Plaintiff’s 11 pleadings or to act on assumption that the defense will eventually be asserted properly. 12 See Swanson v. Van Otterloo, 177 F.R.D. 645, 650-51 (N.D. Iowa 1998). It was not until 13 March 13, 2014 at the status conference where Plaintiff first indicated its intention to 14 argue the inheritance theory defense at trial. Thus, Defendants argue they have been 15 prejudiced because they were unable to (1) move to strike the defense pursuant to Fed. R. 16 Civ. P 12 (f); and (2) move for summary judgment on the merits of the defense at the 17 time the parties filed their dispositive motions. Like Lopez, the Defendant here would be 18 prejudiced by their inability to conduct discovery on the issue due to the untimeliness of 19 the inheritance defense that could have been raised much earlier. 20 Although a court has discretion to allow an omitted counterclaim or defense at any 21 time “when justice so requires” the sound exercise of this discretion usually involves the 22 presence or absence of such factors as undue delay, bad faith, undue prejudice to 23 opposing party or futility of amendment. Gabrielson v. Montgomery Ward & Co., 785 24 F.2d 762, 766 (9th Cir. 1986). Given the facts and history of this case, it would be 25 prejudicial to allow Plaintiff to assert this inheritance theory as an affirmative defense 26 after discovery has been closed. Additionally, allowing this defense would present 27 28 10 08cv1521 1 issues and questions of law and fact that need further development.6 The scope and 2 extent of that inheritance right would expand the matters of this litigation beyond what is 3 currently known as trial approaches. This would prejudice Defendants as it would 4 require Defendants to respond to the inheritance defense without full discovery, research 5 and motions practice. For the reasons discussed above, the Court finds Plaintiff waived 6 this Inheritance Theory Defense by failing to raise it in a timely manner that would cause 7 substantial prejudice for Defendants at this late stage of the litigation. 8 B. 9 Oral Agreement Defense To determine whether Plaintiff’s Oral Agreement defense is precluded by the 10 statute of limitations, the Court must resolve: (1) when, if ever, can affirmative defenses 11 by time-barred by the applicable statute of limitations; (2) is the matter before the Court 12 one of those situations; and (3) if the Court answers the first two inquiries in the positive, 13 then does California’s two-year limitations period or Lebanon’s ten-year period apply? 14 The Court addresses each inquiry in turn. 15 1. 16 Affirmative Defenses May be Barred by Applicable Statutes of Limitations in Some Circumstances. 17 Plaintiff first argues that an affirmative defense cannot be barred by limitations. 18 (Doc. No. 316 at 11.) Indeed, the general maxim is that a “statute of limitations should 19 only be used as a shield, not a sword” and courts generally allow defendants to raise 20 defenses that, if raised as claims, would be time-barred. City of Saint Paul Alaska v. 21 Evans, 344 F.3d 1029, 1033 (9th Cir. 2003); see also Styne v. Stevens, 26 Cal. 4th 42 22 (2001). However, the Ninth Circuit has carved out a limited fact-specific exception to 23 this general rule. Evans, 344 F.3d at 1033. A review of the Evans decision is helpful to 24 begin the Court’s analysis of the matter at hand. 25 26 27 For example, Karoun Lebanon was the owner of the Karoun mark at the time of Ohannes’ death. Thus, it is unclear how Anto could have inherited a right to the Karoun mark from Ohannes. 6 28 11 08cv1521 1 Evans involved “the latest round of a long-simmering legal feud” between 2 Tanadgusix Corporation (“TDX”), a native corporation, and the City of St. Paul (“the 3 City”). The two parties had previously engaged in various federal and state lawsuits 4 over their respective rights to federal land on St. Paul. Id. at 1030-31 In 1988, the two 5 entities reached a Settlement Agreement that governed their relationship. Id. at 1032. 6 However, the City was unable to commercially capitalize on the land and in 1996 7 challenged the validity of the Settlement in a suit filed against the Secretary of Com- 8 merce (not TDX) in federal district court in the District of Columbia. The City’s lawsuit 9 was transferred to the federal court in Alaska and TDX added as a defendant. TDX had 10 also previously initiated a lawsuit against the City and federal defendants. The two cases 11 were consolidated and TDX’s claims were dismissed without prejudice and re-styled as 12 counterclaims in the suit filed by the City. Id. The district court found that the City’s 13 claims were barred by the six-year statute of limitations in Alaska for lawsuits filed by 14 governmental entities. Id. at 1033. Four of the City’s affirmative defenses were 15 identical to its time-barred affirmative claims, however the district court ruled that the 16 statute of limitations did not apply to the defenses. Ultimately the district court rejected 17 the defenses on the merits. The City appealed. 18 In analyzing the threshold issue of whether the six-year limitations period barred 19 the City from asserting its claims as affirmative defenses, the Court of Appeals acknowl- 20 edged the general maxim that the statute of limitations should be used as a shield and not 21 a sword. Id. The Court then went on to analyze three Supreme Court decisions and a 22 Tenth Circuit case that illustrated this principle: Bull v. United States, 295 U.S. 247 23 (1935), and United States v. Dalm, 495 U.S. 592 (1990); United States v. W. Pac. RR., 24 352 U.S. 59 (1956); and Northern. Pac. Ry. Co., v. United States, 277 F.2d 615 (10th 25 Cir. 1960). Id. at 1034. Crucial to this Court’s analysis is this statement made by the 26 Evans Court: 27 28 “A common thread running through these cases is the emphasis on the respective roles of the parties in the litigation as a whole. It is important 12 08cv1521 1 2 3 that the party asserting the defense is not, simultaneously or in parallel litigation, seeking affirmative recovery on an identical claim. Thus, whether affirmative defenses are exempt from statute of limitations largely hinges on a realistic assessment of the parties’ litigation posture.” 4 5 Id. at 1035. The Evans Court further noted cases in sister circuits that have held 6 statutes of limitations and laches bar declaratory judgment claims seeking to establish a 7 defense in anticipation of an action to enforce a contract or regulation. Id. at 1035. “[A] 8 plaintiff cannot engage in subterfuge to characterize a claim as a defense in order to 9 avoid a temporal bar.” Id. (citing Mobil Oil Corp. v. Dep’t of Energy, 728 F.2d 1477, 10 1488 (Emer. Ct. App. 1983). Accordingly, the Evans Court found the City’s affirmative 11 defenses essentially claims and were likewise barred by the six year statute of limita- 12 tions. Id. at 1036. 13 Courts that have analyzed the holding of Evans generally do so in the context of 14 applying the general rule. However, a Northern District of California case is comparable 15 to the matter before this Court. In Board of Trustees of Leland Stanford Junior Univer- 16 sity v. Roche Molecular Systems, Defendant Roche asserted three defenses that if 17 brought as claims would have been time-barred in a patent infringement case: (1) Roche 18 is an owner of the patents; (2) Roche is a licensee of the patents; and (3) Plaintiff lacked 19 standing because it is not the exclusive owner of the patent. 2007 WL 608009 (N.D. Cal. 20 2007) Roche pleaded these as both counterclaims and affirmative defenses. 21 In analyzing the reasoning of Evans as applied to the facts before it, the district 22 court noted that time-barred claims are raised as defenses most commonly in the context 23 of equitable recoupment. The main reason being that defendants in such circumstances 24 are not seeking affirmative recovery of an identical claim. Id. at 9 (citing Evans, 344 25 F.3d at 1035). “But where a defendant seeks more than adjudication of questions raised 26 by way of defense, and instead seeks affirmative recovery via counterclaim, it ‘abandons 27 its right to seek solace in the status of a defendant.’” Id. (quoting Evans, 344 F.3d at 28 1046). In ruling that Roche’s licensee defense fell under the general rule, the district 13 08cv1521 1 court noted that “Roche’s claim as licensee seeks no affirmative recovery, but only to 2 preserve the status quo, and is better viewed as an affirmative defense. As such, it is 3 entitled to the traditional shield from a statute of limitations-based attack.” Id. However, 4 as to the other two defenses, patent ownership and Plaintiff’s lack of standing, the 5 district court stated that these claims sought to expand Roche’s current rights, and are 6 therefore properly viewed as counterclaims subject to the applicable statute of limita- 7 tions. Id. 8 This analysis informs the Court in the instant matter. Contrary to Plaintiff’s 9 assertion, the Oral Agreement defense may indeed be barred by the applicable statute of 10 limitations. Where a party attempts to disturb the status quo and seek to expand current 11 rights using a defense, a court may properly view it as a claim masquerading as a defense 12 and find it time barred. This analysis is fact specific and the Court must conduct a 13 “realistic assessment of the parties’ litigation posture.” Evans, 344 F.3d at 1035. 14 15 16 2. The Alleged Oral Contract Defense is Subject to the Applicable Statute of Limitation Plaintiff argues that Evans is factually and procedurally distinguishable from the 17 instant case. (Doc. No. 316 at 14.) Plaintiff states that its initial lawsuit merely sought to 18 enforce its trademark rights and did not seek any relief based on the alleged Oral 19 Agreement. It was not until Defendants filed their counterclaim and after Plaintiff’s 20 failed motion to dismiss the counterclaim that Karoun filed their answer asserting the 21 Oral Agreement defense. Karoun’s attempt to bring the breach of oral agreement claim 22 was ultimately denied as untimely. Therefore, Plaintiff argues that the affirmative 23 defense is not duplicative of a previously filed but time-barred complaint. (Id.) Though 24 the facts of this case are not identical to those in Evans, its rationale is still applicable. 25 An important factor the Evans Court considered in finding the City’s defenses 26 were time-barred was the fact that the City was the initial aggressor. Evans, 344 F.3d at 27 1035 (“The City initiated the lawsuit and there is no question that the City ‘disturbed the 28 equilibrium between the parties’ by first challenging the validity of the Agreement in 14 08cv1521 1 court.” (internal citation omitted)). Likewise, Plaintiff here cannot escape the conclusion 2 that it was the initial aggressor and “disturbed the equilibrium between the parties.” Id. 3 Indeed, it was in 2010, two years after the initial filing of the trademark infringement 4 suit, that Plaintiff attempted to add Anto as a party and assert the breach of oral contract 5 claim. Moreover, when Plaintiff was unsuccessful in asserting the breach of oral 6 contract claim in the instant litigation, Anto sought to file it in state court in the County 7 of Los Angeles. (Doc. No. 314-3, Ex. A.) Evans emphasized that in cases where the 8 general rule applied, the party asserting the defense was not “simultaneously or in 9 parallel litigation, seeking affirmative recovery” on the identical claim. Here, Plaintiff 10 seeks to do just that. Plaintiff attempted to do so before this Court and did so in another 11 court. 12 Additionally, the current use of the alleged Oral Agreement is essentially an 13 attempt to revive the same claims but by pleading them as defenses. It is illogical to say 14 that Plaintiff can revive his stale claims, which asserts the same rights, by filing them as 15 affirmative defenses. Much like Roche’s patent ownership and standing defenses, 16 Plaintiff’s use of the alleged Oral Agreement asks this Court to determine, on the merits, 17 that the Oral Agreement exists and that Ara breached the oral contract, thereby expand- 18 ing the scope of Plaintiff’s current rights. This Court’s conclusion turns on this point. 19 By asserting this defense, Plaintiff seeks more than mere adjudication of questions raised 20 by way of defense, and instead seeks what amounts to a declaration of Plaintiff’s rights 21 under the alleged Oral Agreement. Asserting this affirmative defense necessarily would 22 be asserting rights beyond Plaintiff’s current rights, i.e. that Anto and therefore Karoun 23 has the right to use the Karoun mark in all geographic areas outside Lebanon. Therefore 24 it is properly viewed as a claim subject to the applicable statute of limitation. 25 Accordingly, this Court finds the Oral Agreement defense is an effort for affirma- 26 tive relief in which Plaintiff seeks to have the Court find a valid Oral Agreement existed 27 and that Defendant breached it. No matter what gloss Plaintiff puts on its defense, it is 28 15 08cv1521 1 simply a time-barred claim masquerading as a defense and is likewise subject to the 2 statute of limitations bar, if California law applies. 3 4 5 3. California’s Statute of Limitations is Applicable to the Oral Agreement Defense Plaintiff contends that Lebanese law controls and this Court should not place any 6 reliance on Judge Wilson’s decision, when he found California law applicable after 7 conducting California’s “governmental interest analysis” to determine choice of law. 8 Plaintiff argues the facts before Judge Wilson and this Court are different and that Judge 9 Wilson erred by not abiding by California Civil Code § 1646 which requires a contract to 10 be interpreted according to the law and usage of the place where it is made, i.e. Lebanon. 11 As an initial matter, the differences cited by Plaintiff are not so disparate that they 12 render the case before this Court and the case before Judge Wilson so incomparable that 13 we must ignore Judge Wilson’s analysis. Though the party at issue is Karoun in this 14 case, the basis of the corporation’s defense is the alleged Oral Agreement made by Anto. 15 Though Karoun is attempting to assert the Oral Agreement as a defense and not an 16 affirmative claim, the Court has already disposed of this issue in the analysis of the 17 applicability of the statute of limitations to affirmative defenses above. A review of 18 Judge Wilson’s opinion reveals that he indeed did consider Civil Code § 1646, but 19 determined where applying the law of a foreign state would conflict with California law, 20 California uses a “governmental interest” approach to determine which body of law 21 governs. This Court agrees with Judge Wilson’s ultimate conclusion, though it arrives at 22 that result through a different approach. 23 Generally, California law dictates that “[a] contract is to be interpreted according 24 to the law and usage of the place where it is to be performed; or, if it does not indicate 25 place of performance, according to the law and usage of the place where it was made.” 26 Cal. Civ. Code § 1646. Plaintiff would have the Court end its analysis here and find that 27 under Civil Code § 1646, this Court must apply the Lebanese ten-year statute of limita- 28 16 08cv1521 1 tions as the Oral Agreement was made in Lebanon. (Doc. No. 316 at 17.) However, this 2 is not the end of the Court’s inquiry. 3 Frontier Oil Corp. v. RLI Ins. Co. is informative on this matter. 153 Cal. App. 4th 4 1436 (2007). In that case, the court conducted an extensive and persuasive analysis of 5 choice of law issues in the context of California Civil Code § 1646 and the “governmen- 6 tal interest analysis.” Id. at 1451-61. The court concluded that the “governmental 7 interest analysis” did not supplant Civil Code § 1646 as the law governing the interpre- 8 tation of contracts. The court found that though Civil Code § 1646 determines which law 9 to apply when interpreting the contract, the “governmental interest analysis” would 10 apply to “other choice-of-law issues.’ Id. at 1459 (“Instead, we hold that the choice-of- 11 law rule in Civil Code section 1646 determines the law governing the interpretation of a 12 contract, notwithstanding the application of the governmental interest analysis to other 13 choice-of-law issues.”). Moreover, in listing what these “other choice-of-law issues” 14 were, the Court expressly listed: (1) statute of limitations; (2) validity and enforcement 15 of a contract; (3) statute of frauds; and (4) parol evidence rule. Id. at 1453-54. Indeed, 16 the court was critical of these cases that have cited § 1646 to support conclusions on 17 choice-of-law issues other than the law governing contract interpretation. These cases 18 did not explain “why a statute that by its express terms establishes a choice-of-law rule 19 only as to the interpretation of a contract should determine other choice of law issues.” 20 Id. at 1454. Accordingly, this Court does not rely on § 1646 to rule on the matter of the 21 applicable statute of limitation. Instead, we must conduct the “governmental interest 22 analysis” just as Judge Wilson did. 23 The governmental interest analysis involves a three step inquiry. First, the court 24 determines whether the applicable rules of law of the potentially concerned jurisdictions 25 are the same or different. If the applicable rules of law are materially different, the court 26 proceeds to the second step. This involves an examination of the interests of each 27 jurisdiction in having its own law applied to the particular dispute. If each jurisdiction 28 has an interest in applying its own law to the issue, there is a “true conflict” and the court 17 08cv1521 1 proceeds to the third step. The third step is called the “comparative impairment analy- 2 sis,” in which the court determines which jurisdiction has a great interest in the applica- 3 tion of its own law to the issue, or, conversely, which jurisdiction’s interest would be 4 more significantly impaired if its law were not applied. Id. at 1454-55 (internal citations 5 omitted). 6 Under California law, the burden is on the proponent of a foreign law to show that 7 the foreign jurisdiction’s interest in having its law apply is greater than California’s 8 interest in the application of its laws. The Court concurs with Judge Wilson in finding 9 that a conflict of law clearly exists. California law mandates a two-year statute of 10 limitations applicable to oral contracts. Cal. Civ. Code § 339. Lebanese law provides 11 for a more liberal statute of limitations as the ten-year limitations period does not begin 12 to run until the alleged breach ceases. The interest of the respective states must be 13 considered. 14 The Court also agrees with Judge Wilson’s finding that California’s interest in 15 applying its own law to the instant case is strong. Where the conflict concerns a statute 16 of limitations, the governmental interest approach generally leads California courts to 17 apply California law. Deutsch v. Turner Corp., 324 F.3d 692 (9th Cir. 2003) (internal 18 citations omitted). Moreover, “California’s interest in applying its own law is strongest 19 when its statute of limitations is shorter than that of the foreign state, because a state has 20 a substantial interest in preventing the prosecution in its courts of claims which it deems 21 to be stale.” Id. (internal quotation marks and citations omitted). 22 Plaintiff argues that Lebanon’s interest is materially stronger. (Doc. No. 316 at 23 19.) However, only an “extraordinarily strong interest of a foreign state in keeping these 24 claims alive could overcome the presumption that California will not hear claims that 25 have been stale for so long under its own law” Id. at 717. Both Parties to the alleged 26 Oral Agreement, Anto and Ara, reside in the United States. While, Lebanon may have 27 an interest in regulating Karoun Lebanon the corporation, the issue of the enforcement of 28 the agreement in Lebanon is not being contested. Indeed, there is no allegation that 18 08cv1521 1 Plaintiff is attempting to use the Karoun mark in Lebanon. Accordingly, this Court finds 2 that Plaintiff has failed to meet his burden of showing Lebanon has a greater interest in 3 applying its laws. California’s two-year statute of limitation is the appropriate period to 4 this case. 5 4. Plaintiff’s Oral Agreement Affirmative Defense is Time Barred. 6 Based on the analysis above, this Court finds that Plaintiff’s Oral Agreement 7 defense is time-barred. This affirmative defense is merely a claim masquerading as a 8 defense. California’s two-year statute of limitations is applicable. Based on California’s 9 statute of limitations, the claim expired in December 2008.7 Accordingly, the affirmative 10 defense is likewise time-barred. 11 Defendant also pose three independent grounds to find the alleged Oral Agreement 12 unenforceable: (1) it violates California’s law and public policy against restraint of trade; 13 (2) it lacks sufficient consideration; and (3) it violates Lebanon’s statue of fraud. These 14 three grounds are currently before the Los Angeles superior court which will be hearing 15 arguments on Defendant’s demurrer on July 11, 2014. The Court has already found the 16 alleged Oral Agreement defense to be time-barred, as such it is unnecessary for the Court 17 to consider these independent reasons. 18 IV. CONCLUSION 19 For the reasons stated above, the Court GRANTS Defendants/Counterclaimants’ 20 motion for summary judgment in its entirety, finding for Defendants/Counterclaimants’ 21 on the “Oral Agreement Defense” and the “Inheritance Theory Defense” as described 22 herein. 23 As noted above, this Court stayed this case pending the Ninth Circuit decision 24 concerning the related case filed in Los Angeles Superior Court and transferred to the 25 Central District of California (Doc. No. 292), and later lifted the stay to allow the filing 26 27 7 28 Plaintiff became aware of the alleged breach of Oral Agreement in 2006 when Defendant’s counsel notified him that Defendant intended to apply for the Karoun mark. Plaintiff attempted to add the breach of oral contract claim in 2010. 19 08cv1521 1 of the current motion. (Doc. No. 311.) Having completely disposed of the oral contract 2 and inheritance defenses, the Court finds the stay no longer necessary and herewith 3 vacates the stay. This matter is sufficiently narrowed to proceed to trial. Therefore, the 4 Court sets a Case Management Conference for August 1, 2014 at 3:00 P.M. in Court- 5 room 3B, to discuss setting further proceedings for the case. 6 7 8 DATED: July 8, 2014 9 10 Hon. Anthony J. Battaglia U.S. District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20 08cv1521

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