Ajzn, Inc v. Donald Yu, et al

Filing 112

ORDER - The Defendants' Motion for Summary Judgment ( 87 ) is DENIED because there are disputes regarding material facts, which raise genuine issues for trial. The defendants Aerielle, LLC, Aerielle Technologies, Inc., Aerielle Acquisitions Corporation, and Aerielle IP Holdings, LLC are DISMISSED. Signed by Judge Gregory M. Sleet on 4/21/2016. (mdb)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
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AJZN, INC., A California corporation, formerly
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known as.AERIELLE, INC.,
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Plaintiff,
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V.
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DONALD YU, AERIELLE, LLC, GREAT,
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AMERICAN LIFE INSURANCE COMPANY,
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AERIELLE TECHNOLOGIES, INC., AERIELLE )
IP HOLDINGS, LLC, and AERIELLE
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ACQUISITIONS CORPORATION,
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Defendants.

Civil Action No. 13-149-GMS

ORDER
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At Wilmington, this .11_ day of April, 2016, having considered the Motion for.Summary
Judgment (D.I. 87) 1 filed by the defendants Donald Yu ("Yu"), Aerielle, LLC ("Aerielle, LLC"),
Great American Life Insurance Company ("GALIC"), Aerielle Technologies, Inc. ("ATI"),
Aerielle Acquisitions Corporation ("Aerielle Acquisition"), and Aerielle IP Holdings, LLC
("Aerielle IP Holdings") (collectively, the "Defendants"), the parties' submissions in connection
with this motion (D.I. 88; D.I. 95; D.I. 103), and the applicable law;

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On June 28, 2012, the plaintiff AJZN, Inc. ("AJZN") filed this lawsuit against the Defendants.
(D.I. 1.) On March 15, 2013, AJZN filed an Amended Complaint. (D.I. 36.) On April 15, 2013, the
Defendants filed a motion to dismiss for failure to state a claim (D.I. 38), which this court granted as to
Counts 1, 2, 3, 4, 5, 7, and 10 (in part), and denied as to Counts 6, 8, 9, 10 (in part), and 11. (D.I. 51).
AJZN is no longer pursuing Counts 9 and 11. (See D.I. 95 at 1 n.1.) Thus, the remaining claims are
Count 6 against Yu and Count 10 against Yu and GALIC. AJZN does not seek a double recovery against
Yu, but asserts both Count 10 and Count 6 in the event that Count 6 is dismissed. (D.I. 95 at 18 n.11.)

IT IS HEREBY ORDERED that the Defendants' motion (D.1. 87) is DENIED because
there are disputes regarding material facts, which raise genuine issues for trial. 2

2

Under Federal Rule of Civil Procedure 56(a), ("[T]he court shall grant summary judgment if
the movant shows that there is no genuine dispute as to any material fact .... "). Fed. R. Civ. P. 56(a).
See also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the burden of
proving that no genuine issue of material fact exists. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 585 n.10 (1986). A fact is material if it "could affect the outcome" of the
proceeding. Lamont v. New Jersey, 637 F.3d 177, 181 (3d Cir: 2011). There is a genuine issue "ifthe
evidence is sufficient to permit a reasonable jury to return a verdict for the non-moving party." Id. When
determining whether a genuine issue of material fact exists, the district court must view the evidence in a
light most favorable to the nonmoving party and draw inferences in that party's favor. Wishkin v. Potter,
476 F.3d 180, 184 (3d Cir. 2007).
The Defendants assert that summary judgment is appropriate on Count 6 for several reasons. First,
Yu owed no fiduciary duties to AJZN after April 10, 2009, when he resigned as CEO. (D.I. 88 at 11).
AJZN responds that the Defendants misunderstand the relevance of Yu' s conduct after the closing of the
2009 Asset Sale. (D.I. 95 at 16.) "Yu's after-the fact conduct does not mean Plaintiff is claiming Yu owed
a continuing fiduciary duty to AJZN, as the Defendants assert. Rather, his later conduct is relevant to show
his state of mind at and before the closing of the transaction." (Id.) The court agrees with AJZN. Under
California law, "knowledge of ... the intention not to perform as represented may be inferred from the
subsequent conduct of the representer." Twomey v. Mitchum, Jones & Templeton, Inc., 262 Cal. App. 2d
690, 711, 69 Cal. Rptr. 222, 237 (1968). Here, Yu's conduct after the 2009 Asset Sale may be considered
as evidence of his earlier intentions.
The Defendants also argue that the plaintiff cannot prove that Yu violated a fiduciary duty by
committing fraud and therefore they are entitled to summary judgment because Yu's conduct is subject to
the Release. (D.I. 88 at 11.) The Defendants mischaracterize the court's previous ruling. The court
dismissed Count 1, Count 2, Count 4 and Count 5 on grounds that they were insufficiently pled under the
respective statutes, but did not address the claims of fraud on the merits. (See D.I. 51 at 4-13, 16-19.) In
addition, the court held that to the extent AJZN could prove a violation of fiduciary duty under Civil Code
§ 3294, it was not subject to the Release because fraud is a core element of a§ 3294 claim. (D.1. 51 at
21.) Similarly, the Release does not bar the unjust enrichment claim, which is based upon the same
alleged underlying fraudulent conduct. (D.I. 95 at 18.)
Next, AJZN argues that AJZN's claims based upon fraud alleged to have been committed in April
2010 are barred by a three-year statute of limitations. (D.I. 88 at 12-13, 19); 10 Del. C. § 8106(a). The
plaintiffs respond that a cause of action for breach of fiduciary duty sounding in fraud is subject to the
discovery rule. (D.I. 95 at 16-17.) AJZN contends that it did not discover, and could not have discovered,
Yu's undisclosed intention not to honor the Warrant until at least mid-2010 because the Warrant had a
"Vesting Date" of April 10, 2010. (D.I. 95 at 17.) The court agrees that the statute oflimitations began to
run after AJZN's rights under the Warrant vested and it became clear that Yu would not honor the terms of
the warrant. See April Enters., Inc. v. KTTV, 147 Cal. App. 3d 805, 827 (1983) ("[i]t is well-settled that the
discovery rule applies to causes of action involving the breach of a fiduciary relationship").
The Defendants have offered no rationale to support their contention that Count 6 should be
summarily dismissed. In addition, genuine issues of material fact remain in dispute as to whether there
was a breach of fiduciary duty. AJZN has adduced evidence that Yu was in a conflicted position as CEO
for AJZN and Aerielle, LLC and that Yu never intended to honor the Warrant. Instead, according to
AJZN, Yu attempted to wipe out the value of the Warrant to prevent AJZN from exercising its rights.
(D.I. 95 at 15.) Finally, while the Defendants argue that AJZN cannot prove damages (D.I. 103 at 5), this

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The defendants Aerielle, LLC, Aerielle Technologies,

me., Aerielle Acquisitions

Corporation, and Aerielle IP Holdings, LLC are DISMISSED.

issue is also disputed by AJZN who argues that it was damaged when it could not exercise the Warrant.
(D.I. 95 at 18.)
With regard to Count 10, the Defendants argue that AJZN has failed to establish the elements of
an unjust enrichment claim. To make out an unjust enrichment claim, the plaintiff must demonstrate: "(1)
an enrichment, (2) an impoverishment, (3) a relation between the enrichment and the impoverishment, (4)
the absence of justification and (5) the absence of a remedy provided by law." Resnikv. Woertz, 774 F.
Supp. 2d 614, 633 (D. Del. 2011); quoting Jackson Nat'/ Life Ins. Co. v. Kennedy, 741A.2d377, 393
(Del. Ch. 1999). The Defendants contend that AJZN fails to prove an enrichment or impoverishment.
The court, however, finds that issues of material fact remain in dispute as to whether GALIC was
enriched and AJZN was impoverished. (D.I. 95 at 18.) Next, the Defendants argue that AJZN has failed
to establish the absence of a remedy provided by law. (D.I. 103 at 8-9). AJZN responds that it lacked a
"legal claim against GALIC because it was not directly a party to the Warrant or the 2009 Asset Sale, but
benefitted indirectly by the enrichment of Aerielle, LLC of which it owned 100% of the issued
membership units." (D.I. 95 at 18.) The Defendants point out that AJZN's legal remedy was to bring a
claim against Aerielle, LLC for the breach of the Warrant. (D.1. 103 at 8-9.) The court does not agree
that AJZN's rights are governed exclusively by the Warrant. Tolliver v. Christina Sch. Dist., 564 F.
Supp. 2d 312, 316 (D. Del. 2008). Third, the Defendants argue that AJZN cannot show that the
Defendants' actions were unjustified. (D.1. 103 at 9-10.) AJZN asserts that GALIC's and Yu's
enrichment was unjust because it was based on an undisclosed intent not to honor the Warrant and Yu's
breach of his fiduciary duty. (D.1. 95 at 18.) As previously discussed, the facts underlying the resolution
of these issues are still in dispute.
·The court finds, based on its review of the parties' submissions and the cited record, that material
facts remain in dispute. Thus, summary judgment is not appropriate at this stage.

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