Total Recall Technologies v. Palmer Luckey

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUN 15 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
TOTAL RECALL TECHNOLOGIES, No. 19-15544
Plaintiff-Appellant, D.C. No. 3:15-cv-02281-WHA
v.
MEMORANDUM*
PALMER LUCKEY; OCULUS VR, LLC,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
William Alsup, District Judge, Presiding
Argued and Submitted April 21, 2020
San Francisco, California
Before: WALLACE and BERZON, Circuit Judges, and BERG,** District Judge.
This case comes to us from the district court’s summary judgment in favor of
Palmer Luckey and Oculus VR, LLC (collectively, Defendants). In the first appeal,
we remanded to the district court to address three questions: (1) whether federal
procedural law, including Federal Rule of Civil Procedure 9(a)(1)(A) or 9(a)(1)(B),
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Terrence Berg, United States District Judge for the
Eastern District of Michigan, sitting by designation.
enables Defendants to challenge the internal management authority of Total Recall
Technologies (Total Recall) to sue; (2) if federal procedural law permits Defendants
to make their challenge, whether Total Recall provided sufficient evidence of Ron
Igra’s authority and/or Total Recall’s capacity to proceed; and (3) if Defendants can
challenge Total Recall’s authority or capacity, and if Total Recall ratified its
previous action; whether the statute of limitations expired. The district court agreed
with Defendants on all three points and entered summary judgment in their favor.
This appeal followed.
Even assuming that Defendants could challenge Total Recall’s capacity or
Igra’s authority to sue on Total Recall’s behalf under Rule 9(a)—a question which
may be debated—and that the action was defective as filed, we conclude that Total
Recall retroactively cured any defect and that the cure was not time-barred. We
therefore reverse the district court’s summary judgment and remand for further
proceedings.
The district court abused its discretion by requiring Thomas Seidl to consent
to the action as a condition of ratification. By imposing that condition, the district
court compelled Total Recall to keep its same structure and ownership to continue
prosecuting the action. Hawaii partnership law, which governs the construction of
Total Recall’s partnership agreement, did not tie Igra’s hands in that way; any
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conditions of ratification needed only to account for the makeup of the partnership
under state law.
Igra filed a declaration memorializing that after a Hawaii state court
mediation, (1) Seidl had withdrawn from the partnership; (2) the partnership (now
in wind-down mode) had retained its interest in this action and Seidl would receive
30% of any recovery; (3) Igra was the sole partner; and (4) Igra would indemnify
Seidl’s costs arising from this action. By removing Seidl as a partner, Igra had
unilateral authority to control Total Recall’s participation in this litigation, which he
exercised by submitting a declaration consenting to the action and ratifying its filing.
No more was required.
We disagree with Defendants that ratification of the lawsuit required Seidl’s
affirmative consent when he was still a partner of Total Recall. Any prejudice
Defendants suffered because “all prior proceedings—including the complaint,
briefing, and the entirety of fact discovery—were conducted without a legally
cognizable plaintiff” was purely academic. Nothing would have precluded Igra and
Seidl from entering into a similar withdrawal and consent agreement before the
action was filed. We therefore reject Defendants’ contention that Igra’s chosen
mode of ratification was inadequate. See CLD Constr., Inc. v. City of San Ramon,
16 Cal. Rptr. 3d 555, 562 (Ct. App. 2004); Cal. Sav. & Loan Soc. v. Harris, 43 P.
525, 526 (Cal. 1896).
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In addition, the district court erred in concluding that Total Recall’s
ratification happened too late. As a general rule, a statute of limitation is tolled when
a complaint is filed as to matters arising out of the action. See Cal. Civ. Proc. Code
§ 350.1 The district court applied a statutory exception providing that the limitations
period will not be tolled for corporations which are suspended for non-payment of
taxes and for that reason lack legal capacity to sue and be sued in California. Under
the revivor statutes, once delinquent taxes are paid for the suspended corporation,
the corporation’s powers are restored, thus reviving its capacity to sue. See Cal. Rev.
& Tax. Code. §§ 23305, 23305(a). Under these provisions, a suspended
corporation’s lack of capacity “does not operate to toll the running of the statute of
limitations.” V&P Trading Co., Inc. v. United Charter, LLC, 151 Cal. Rptr. 3d 146,
150 (Ct. App. 2012).
Under California law, this exception does not vitiate ordinary tolling
principles as to any defect in Total Recall’s capacity or authority to sue. American
Alternative Energy Partners II v. Windridge, Inc., 49 Cal. Rptr. 2d 686 (Ct. App.
1996), is especially persuasive on this point. There, the plaintiff had not filed a
certificate of partnership with the Secretary of State when it filed its action. Id. at
1
In this diversity case, California law governs the question of statute of limitations
and applicable tolling rules. See G & G Prods. LLC v. Rusic, 902 F.3d 940, 947 (9th
Cir. 2018).
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691. Under California law at the time, a limited partnership could not “maintain” an
action in California court until a certificate of partnership was filed. See id. In
arguing that the action was barred by the statute of limitations, the defendant urged
the court to conclude that the plaintiff’s “situation [was] analogous to a corporation
whose powers have been suspended for nonpayment of the corporate franchise tax.”
Id. at 693.
The court rejected the argument. First, the court observed that the plaintiff
was not a suspended corporation but a general partnership with capacity to sue in the
name it had assumed. See id. Second, the court explained that the “legislative policy
behind the tax code provisions is to enhance tax collections rather than to assure
enforceability of judgments, as with other rules on party capacity.” Id. (citations
omitted; emphasis added). The California court accordingly concluded that the
statute of limitations rules under the corporate revivor statutes did not apply.
Id. at 693–94.
All of the published California intermediate appellate decisions on which
Defendants rely applied the statutory exception to suspended corporations and are
therefore inapposite. See V&P Trading Co., 151 Cal. Rptr. 3d at 152; Friends of
Shingle Springs Interchange, Inc. v. Cty. of El Dorado, 133 Cal. Rptr. 3d 626, 644
(Ct. App. 2011); Ctr. for Self-Improvement & Cmty. Dev. v. Lennar Corp., 94 Cal.
5
Rptr. 3d 74, 81 (Ct. App. 2009); Leasequip, Inc. v. Dapeer, 126 Cal. Rptr. 2d 782,
788 (Ct. App. 2002).
Because Total Recall is not a tax-delinquent corporation, or a suspended
corporation for any other reason, the statute of limitations rules under California’s
corporate revivor statutes do not apply. Accordingly, the filing of the Complaint
tolled the applicable statute of limitations, and Igra’s ratification of the action was
timely.
For these reasons, the district court’s summary judgment is
REVERSED AND REMANDED.
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