Metabyte v. Technicolor S.A.

Filed 8/9/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
METABYTE, INC., B319338
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. 21STCV22685)
v.
TECHNICOLOR S.A. et al.,
Defendants and
Respondents.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Daniel S. Murphy, Judge. Reversed with
directions to grant leave to amend.
Law Offices of David H. Schwartz, David H. Schwartz,
Nancy Chung; Joseph A. Hearst for Plaintiff and Appellant.
Kirkland & Ellis, David Horowitz, Michael Shipley and
Robert Carnes for Defendants and Respondents.
_________________________
In a case which seems destined for the pages of a civil
procedure casebook, Metabyte, Inc., appeals from the trial court’s
judgment of dismissal and order sustaining Technicolor’s
demurrer without leave to amend. This 2021 action represents
Metabyte’s fourth attempt to hold Technicolor liable for
Technicolor’s allegedly improper auction of a patent portfolio in
2009.1 The first two actions were brought in France, where
Technicolor is headquartered. Metabyte brought a proceeding
under Article 145 of the French Code of Civil Procedure (Article
145 proceeding), and then filed a criminal “plainte” against
Technicolor. After the French courts ruled they lacked
jurisdiction in the criminal action, Metabyte brought an action in
United States District Court in California alleging a federal
RICO claim and several state law causes of action. After the
district court ruled that equitable tolling did not apply to its
RICO claim as a matter of federal law, Metabyte dismissed the
federal action and brought its state law claims in Los Angeles
County Superior Court. The trial court granted Technicolor’s
demurrer without leave to amend, finding that Metabyte’s Article
145 proceeding in France did not equitably toll the statute of
limitations, and so Megabyte’s action was barred by the statute of
limitations.
1 Metabyte brought this action against Technicolor S.A.,
Technicolor USA, Inc. (Technicolor USA), Technicolor
International SAS (Technicolor International), and Thomson
Licensing SAS. The latter three parties are alleged to be
subsidiaries of Technicolor S.A., and for purposes of this
demurrer we will generally refer to them collectively as
Technicolor.
2
Metabyte contends the trial court erred in finding equitable
estoppel applies only where a plaintiff invokes remedies designed
to lessen the extent of a plaintiff’s injuries or damages, with the
result that Article 145 proceeding in France could not support
equitable tolling because it did not provide such a remedy.
Technicolor defends the trial court’s ruling but devotes more of its
energies to its contentions that even if equitable tolling did apply,
the order should be affirmed by applying the doctrines of issue
preclusion and judicial estoppel.
We affirm the trial court’s ruling sustaining the demurrer
on the alternate ground that Metabyte failed to adequately plead
facts showing that its decision to proceed in France was
objectively reasonable and subjectively in good faith. However,
we grant Metabyte leave to amend. We therefore reverse the
judgment and remand for further proceedings.
BACKGROUND
Metabyte is a California corporation. Metabyte’s
subsidiary Metabyte Networks, Inc (MNI) owned patents on
digital video recording (DVR) technology used by cable television
companies in set top boxes. Metabyte and its CEO and principal
shareholder Manu Mehta owned the stock of MNI. At some
point, Metabyte sold shares in MNI to an entity eventually
known as Technicolor USA, but it retained majority ownership of
MNI’s stock. When MNI needed additional financing, it sold
shares to Canal+ Technologies, a corporation in which
Technicolor S.A. was a minority shareholder. An entity which
became Technicolor International then purchased a controlling
interest in Canal+ Technologies, giving Technicolor majority
ownership of MNI stock.
3
At some point, Technicolor decided to liquidate MNI. In
July 2001, liquidation preferences were set. Common
shareholders such as Metabyte could not receive any money from
the liquidation of assets until the preferred shareholders received
over $16.4 million. In December 2009, Technicolor forced an
auction of MNI’s patent portfolio. A Technicolor subsidiary
bought the patents for $1 million. In October 2010, Technicolor
dissolved MNI.
In its complaint in this action. Metabyte alleges: “On or
about June 19, 2012, Mr. Mehta saw a news report that
TECHNICOLOR, SA was being investigated by French judicial
authorities for wrongfully acquiring the assets of Quinta, a
company in which Technicolor was an investor. Mr. Mehta
contacted the French lawyers for Quinta. From the news report
and in preliminary conversations with Quinta’s counsel, Mr.
Mehta learned that Quinta contended that TECHNICOLOR had
invested in Quinta and then destroyed its business, driving it
into bankruptcy, while also acquiring Quinta’s technology for
€ 700,000 when it was valued at over € 36,000,000. Upon
learning of Quinta’s allegations against TECHNICOLOR, Mr.
Mehta for the first time developed a reasonable suspicion that
the MNI patent portfolio in 2009 was worth substantially more
than the $16.4 Million liquidation preference and that
METABYTE had been injured by being cheated out of its right to
a substantial portion of the liquidation value of MNI.”
Metabyte retained Quinta’s lawyers and began legal
proceedings in France. Technicolor SA is a French corporation
with its headquarters in Paris, France. According to Metabyte’s
complaint, on April 29, 2013, about 10 months after it discovered
Technicolor’s wrongful conduct, Metabyte “commenced a
4
proceeding under Article 145 of the French Civil Procedure Code
in the Commercial Court of Nanterre, France, alleging fraud and
breach of fiduciary duty on the part of the TECHNICOLOR
Defendants. The initial proceeding was to obtain authorization
to seize relevant paper and electronic documents related to
METABYTE’s claims for having been damaged by being cut out
of participation in the liquidation of MNI’s patent portfolio and
other assets in 2009.” Metabyte alleged that “[i]n civil litigation
in France, Defendants cannot be compelled to produce documents
relevant to the litigation and face no penalty if such documents
are destroyed. Therefore, it is standard procedure under French
law for civil litigants to commence litigation against a defendant
by seeking an order from a French Court to a French Bailiff to
have the Bailiff appear, unannounced at the defendants’ business
premises and seize relevant documents and records.” “Under
French law, a proceeding under Article 145 tolls the statute of
limitations for bringing a civil complaint.”
Metabyte quickly obtained its order and on “May 21, 2013,
a bailiff seized some of the TECHNICOLOR documents being
sought (the bailiff has never received all the documents sought).
The May 21, 2013, seizure by the Bailiff of TECHNICOLOR
documents gave TECHNICOLOR notice that METABYTE was
seeking recovery of damages through the French legal system for
its share of the liquidation value of MNI.”
According to the allegations of the complaint,
“TECHNICOLOR responded to the document seizure by
requesting that the French court nullify the order granting
METABYTE’s petition. On February 26, 2014, the Court denied
TECHNICOLOR’s challenge to the order but denied METABYTE
access to the seized documents. METABYTE appealed that order
5
to the Versailles Court of Appeals, and, on May 7, 2015, the
Versailles Court of Appeals ruled that METABYTE should have
access to the documents and ordered Technicolor to pay Metabyte
5,000€ for legal costs. TECHNICOLOR then appealed to the
Cour de Cassation, the French Supreme Court, to nullify the May
7, 2015, judgment. On November 3, 2016, the Cour de Cassation
ruled in favor of METABYTE, including an order that
TECHNICOLOR pay METABYTE 3,000€ for legal costs. Despite
the orders of the Commercial Court and the Cour de Cassation,
the bailiff has released only a portion of the documents seized.
The bailiff withheld and continues to withhold the most
important documents because on one hand Technicolor had
threatened the bailiff with legal action if the Bailiff released all
the documents, and on the other hand Technicolor had procured
an order from the Paris Bar prohibiting H lawyer from
requesting the bailiff for access to these documents.”
The complaint alleges that “In addition to pursuing a
private civil complaint, a party wronged by conduct which is
criminal under French law may initiate a criminal complaint
with a French prosecutor to investigate the alleged criminal acts
of the defendant and the wronged party can also seek damages
arising from those criminal acts. This is done first by filing a
simple criminal complaint followed by the filing of a ‘Plainte avec
Constitution de Partie Civile.’ ” Perhaps in response to the
difficulties in the civil proceedings, Metabyte filed “a simple
criminal complaint on September 4, 2016, and then on June 2,
2017, filed a Plainte avec Constitution de Partie Civile with the
Tribunal de Grand Instance de Nanterre, France seeking
compensation in damages from the Defendants as well as seeking
6
the Tribunal’s assistance in getting the withheld documents from
the bailiff.”
Metabyte also alleges that “[u] nder French law the
Prosecutor handling a criminal complaint has the discretion to
inform the defendant of investigation and filing of the Plainte
avec Constitution de Partie Civile. METABYTE is informed and
believes that TECHNICOLOR learned of the criminal
investigation and Plainte avec Constitution de Partie Civile in
the second half of 2016.”
The criminal action proved not to be viable. “On November
23, 2018, the prosecuting magistrate found that France lacked
jurisdiction to proceed against TECHNICOLOR or award
damages to METABYTE. METABYTE appealed the magistrate’s
ruling. On August 12, 2019, the French appeals court affirmed
the ruling of the magistrate finding that France lacked
jurisdiction over the matter and that the matter belonged in
courts in the United States.”
On August 10, 2020, approximately a year after the French
courts found a lack of jurisdiction and five months after COVID
shut down much of the United States, Metabyte filed a complaint
in the United States District Court for the Northern District of
California. The complaint alleged causes of action under the
federal RICO statute and California state law. Technicolor filed
a motion to dismiss pursuant to Federal Rules of Civil Procedure,
rule 12(b)(6), which the district court granted. On April 30, 2021,
the district court issued a written order that equitable tolling did
not apply to RICO claims as a matter of federal law. The district
court also ruled that Metabyte’s state law claims were barred by
the statute of limitations because, as relevant here, California’s
equitable tolling doctrine “is available only when, through those
7
proceedings, a plaintiff ‘pursues’ one or more ‘remedies . . .
designed to lessen the extent of his injuries or damages.’
[(Cervantes v. City of San Diego (9th Cir. 1993) 5 F.3d 1273, 1275
(Cervante).)] . . . [T]he Article 145 proceedings could have
provided Metabyte with relevant documents, but could not have
provided any relief that would ‘lessen the extent’ of Metabyte’s
‘injur[y] or damages.’ ” The district court nevertheless granted
MNI leave to file an amended complaint within 45 days of the
date of the order.
On June 11, 2021, Metabyte filed a notice of dismissal
which stated, “NOTICE IS HEREBY GIVEN that pursuant to
Fed.R.Civ.Pro. 41(a), plaintiff voluntarily dismisses the above-
captioned action without prejudice.”
On June 17, 2021, Metabyte filed this action in Los Angeles
County Superior Court, alleging causes of action for breach of
fiduciary duty, fraud, intentional interference with contractual
relations or prospective economic advantage, breach of the
implied covenant of good faith and fair dealing, and a violation of
Business and Professions Code section 17200. The parties agree
that the longest statute of limitations period is four years. In the
absence of delayed discovery and equitable tolling, this action
would have become time barred in 2013.
Technicolor filed a demurrer to this complaint on the
ground that the action was barred by the statute of limitations.
The trial court denied Technicolor’s request to take judicial notice
of correspondence between the parties concerning the patent
auction and the French proceedings. The trial court granted
judicial notice of the pleadings in district court but stated it
would not consider the truth of the matters asserted therein.
8
The trial court found Metabyte had adequately pleaded
delayed discovery, but also found the equitable tolling doctrine
did not apply to the Article 145 proceedings because that doctrine
requires a plaintiff to pursue a legal remedy designed to lessen
the extent of its injuries or damages, and an Article 145
proceeding does not do that. The trial court sustained the
demurrer without leave to amend and this appeal followed.
On appeal, Technicolor repeats its request for judicial
notice on appeal. We grant the request for judicial notice of the
filings in the federal case, with the exception of the Marie Danis
declaration. Metabyte opposes judicial notice of the Marie Danis
declaration and its description of French law and the French
proceedings. Metabyte states that it does not agree with the
factual contentions and characterization of French law.
Metabyte also states that it does not concede that the
translations of French documents are accurate. We deny the
request for judicial notice of the Danis declaration.2 Because the
French law in the Danis declaration is neither clear nor
undisputed, and the same can be said for the history of the
proceedings, it is an inappropriate matter for judicial notice. If
necessary, these disputed factual issues may be determined in
the trial court after Metabyte files its amended complaint.
We also deny the request for judicial notice of the Article
145 application and the rulings of the French courts, and the
2 We note that Technicolor represents that the trial court in
this matter took judicial notice of the Danis declaration, but this
is only partially correct. This declaration was filed in the federal
action, and although the trial court took judicial notice of the
documents filed in that action, it expressly stated that it was not
considering them for the truth of the matters asserted therein.
9
translations thereof. Technicolor asserts they are offered in
support of their judicial estoppel argument, but, as we discuss
below, under the current allegations of the complaint, Technicolor
has failed to explain how any such statements would qualify as
the basis of judicial estoppel.
DISCUSSION
“We review the trial court’s ruling that sustained the
demurrer to each cause of action of the pleading in accordance
with established standards. ‘A demurrer tests the sufficiency of
the complaint as a matter of law; as such, it raises only a
question of law.’ [Citation.] ‘ “The reviewing court gives the
complaint a reasonable interpretation, and treats the demurrer
as admitting all material facts properly pleaded. [Citations.] The
court does not, however, assume the truth of contentions,
deductions or conclusions of law. [Citation.] The judgment must
be affirmed ‘if any one of the several grounds of demurrer is well
taken. [Citations.]’ [Citation.] However, it is error for a trial
court to sustain a demurrer when the plaintiff has stated a cause
of action under any possible legal theory. [Citation.]”
[Citation.]’ ” (San Mateo Union High School Dist. v. County of
San Mateo (2013) 213 Cal.App.4th 418, 425.)
The material allegations in the action filed by plaintiff
must be accepted as true. The allegations of the complaint must
be liberally construed with a view to attaining substantial justice
among the parties. (San Mateo, supra, 213 Cal.App.4th at
p. 425.) We may affirm a trial court judgment on any basis
presented by the record whether or not relied upon by the trial
court. (Id. at pp. 425–426.) Because the trial court’s
determination is made as a matter of law, we review the ruling
de novo. (Id. at p. 426.)
10
A. Issue Preclusion Does Not Apply
Although Technicolor did not raise an issue preclusion
claim in the trial court, Technicolor contends the order sustaining
the demurrer should be upheld because the “undisputed record
establishes that, as a matter of law,” the federal district court’s
dismissal of Metabyte’s action has preclusive effect. It does not.
A motion to dismiss pursuant to Federal Rules of Civil
Procedure, rule 12(b)(6) is the equivalent of a demurrer. (Estate
of Tucker ex rel. Tucker v. Interscope (9th Cir. 2008) 515 F.3d
1019, 1033, fn. 14.) A voluntary dismissal by notice pursuant to
Federal Rules of Civil Procedure, rule 41(a)(1) “is presumed to be
‘without prejudice’ unless it states otherwise.” (Commercial
Space Management Co. v. Boeing Co. (9th Cir. 1999) 193 F.3d
1074, 1076.) Under federal law, “ ‘[d]ismissal . . . without
prejudice’ is a dismissal that does not ‘operat[e] as an
adjudication upon the merits,’ [(Fed. Rules of Civ. Proc., rule
41(a)(1))], and thus does not have a res judicata effect.” (Cooter &
Gell v. Hartmarx Corp. (1990) 496 U.S. 384, 396.) Nevertheless,
because California substantive law was at issue in the federal
action, the preclusive effect of the federal action is determined by
California law. (Semtek Int’l Inc. v. Lockheed Martin Corp. (2001)
531 U.S. 497, 508.) The result is the same.
California law is clear that a plaintiff may obtain a
voluntary dismissal of its action without prejudice following a
trial court’s order sustaining a demurrer with leave to amend, as
long as the plaintiff does so before the time for leave to amend
has expired. (Wells v. Marina City Properties, Inc. (1981)
29 Cal.3d 781, 789–790 (Wells); see Christensen v. Dewor
Developments (1983) 33 Cal.3d 778, 785.) In contrast, a dismissal
without prejudice is not available if the demurrer is sustained
11
without leave to amend, or if the demurrer is sustained with
leave to amend but the plaintiff fails to file an amended
complaint within the time allotted to do so.
Technicolor is mistaken in arguing that the nature of a
dismissal does not matter for purposes of issue preclusion. The
effect of such a dismissal without prejudice in a civil action is
clear under California law. “ ‘A dismissal “without prejudice”
necessarily means without prejudice to the filing of a new action
on the same allegations, so long as it is done within the period of
the appropriate statute of limitations. [Citations.]’ [Citation.]
Thus, subject to the statute of limitations, [plaintiff] had the
right to file a new action . . . containing some, but not all, of the
claims previously set forth in Case No. 1. In fact, following its
voluntary dismissal of Case No. 1, [plaintiff] could have filed an
action identical to the one it dismissed.” (Cardiff Equities, Inc. v.
Superior Court (2008) 166 Cal.App.4th 1541, 1550.)3
Although Technicolor has cited four cases in which a ruling
or order was held final for issue preclusion purposes when the
prior proceeding was dismissed in whole or part, none clearly
involve a dismissal without prejudice. More importantly, two of
the cases involve specific statutory provisions concerning the
3 With respect to rulings on demurrers, even when an action
is dismissed with prejudice following the sustaining of a
demurrer, “the res judicata effect . . . is of limited scope. . . . [W]e
have previously cautioned that, ‘It is a judgment on the merits to
the extent that it adjudicates that the facts alleged do not
constitute a cause of action . . . . If, on the other hand, new or
additional facts are alleged that cure the defects in the original
pleading, it is settled that the former judgment is not a bar to the
subsequent action whether or not plaintiff had an opportunity to
amend his complaint.’ ” (Wells, supra, 29 Cal.3d at p. 789.)
12
preclusive effect of the order at issue (Rymer v. Hagler (1989)
211 Cal.App.3d 1171 (Rymer) and Buttimer v. Alexis (1983)
146 Cal.App.3d 754 (Buttimer)),4 while the third one involves a
post-judgment settlement in which the trial court’s statement of
decision was vacated but the judgment remained (Meridian
Financial Services, Inc. v. Phan (2021) 67 Cal.App.5th 657).
These cases do not support the application of issue preclusion in
the present case, which does not involve the Penal Code, the
4 In Buttimer, the prior ruling was the grant of a motion to
suppress evidence pursuant to Penal Code section 1538.5,
following which the prosecutor dismissed the charges. (Buttimer,
supra, 146 Cal.App.3d at p. 761.) Section 1538.5, however, has
its own specific rules about the collateral estoppel effect of rulings
under its provisions, including the effect of dismissals without
prejudice. (See, e.g., People v. Superior Court (Jimenez) (2002)
28 Cal.4th 798, 805.)
Similarly, Rymer involved the effect of a dismissal of a
workers compensation claim after the WCAB judge issued an
order on a substantive issue which was a final order under the
Labor Code. (Rymer, supra, 211 Cal.App.3d at pp. 1176–1177.)
Like Penal Code section 1538.5, the Labor Code includes
provisions relating to the preclusive effect of what the Labor Code
deems to be a final order. The plaintiff in Rymer did not seek
review of the subject final order. “When a party fails to seek
review [of the order] within the time allotted, both the WCAB
and the court is without jurisdiction to hear future challenges to
the decision. ([Lab. Code,] §§ 5901, 5950; Scott v. Workers’ Comp.
Appeals Bd. (1981) 122 Cal.App.3d 979, 984 [176 Cal.Rptr. 267].)”
(Rymer, at p. 1182; Maranian v. Workers’ Comp. Appeals Bd.
(2000) 81 Cal.App.4th 1068, 1076.) It would clearly render
meaningless the Labor Code’s bar on future challenges to the
order if a plaintiff could dismiss his worker’s compensation claim
and start anew in the superior court.
13
Labor Code, or the effect of a post-judgment settlement
agreement. The fourth case, Border Business Park, Inc. v. City of
San Diego (2006) 142 Cal.App.4th 1538, involves a demurrer
sustained without leave to amend. Thus, the plaintiff was not
entitled to a dismissal without prejudice. This case is also not
helpful.
B. Equitable Tolling May Apply
The trial court in this matter sustained Technicolor’s
demurrer because it believed that equitable tolling requires “a
legal remedy that is ‘designed to lessen the extent of his injuries
or damages.’ (Addison v. State (1978) 21 Cal.3d 313, 317.)” The
court found “The injury and damage claimed here is the economic
loss suffered when Defendant allegedly rigged an auction to sell
off MNI’s assets at a discount. A preliminary discovery procedure
designed to prevent the destruction of evidence (see Compl. ¶ 43)
does not address or lessen this injury.” The court continued,
“In California, pre-lawsuit evidence mechanisms, like the Article
145 proceeding, are insufficient to constitute the filing of a ‘suit’
for statute of limitations purposes. (Orr v. City of Stockton (2007)
150 Cal.App.4th 622 [(Orr)] [pre-suit discovery proceeding filed
under California Code of Civil Procedure, [s]ection 2035.010 did
not satisfy the filing of a suit for statute of limitations purposes
under the Torts Claims Act].)”
The trial court read Orr too broadly. The opinion in that
case is very narrow: the Court of Appeal explicitly stated that its
“analysis turns solely on the interpretation of section 945.6,
subdivision (a)(1).” (Orr, supra, 150 Cal.App.4th at p. 629.) That
section involves the Tort Claims Act and provides that “ ’[a]ny
suit brought against a public entity on a cause of action for which
a claim is required to be presented in accordance with [the Tort
14
Claims Act] must be commenced’ ” within six months after
written notice of claim rejection. Specifically, the court focused
on the meaning of the term “suit.” (Orr, at p. 629. Italics
omitted.) Orr did not consider equitable tolling or any
proceedings under French civil law. We are not concerned in this
case with the meaning of the term “suit” or California discovery
procedures.
The trial court also overlooked more recent cases, in which
the California Supreme Court has made clear that “pursuit of an
alternate remedy is not always required for equitable tolling.
The doctrine is applied flexibly to ‘ensure fundamental
practicality and fairness.’ ” (J.M. v. Huntington Beach Union
High School Dist. (2017) 2 Cal.5th 648, 658.) The Supreme Court
recently reaffirmed this line of cases noting that “our past cases
stop short of categorically conditioning tolling on a plaintiff’s
pursuit of a viable remedy. [(Ibid.)] The doctrine is sufficiently
supple ‘to “ensure fundamental practicality and fairness.” ’
(Ibid.) And even in cases where a party seeking tolling pursued
an alternative remedy, we’ve concluded that pursuit of a remedy
‘embarked upon in good faith, [yet] found to be defective for some
reason,’ doesn’t foreclose a statute of limitations from being
tolled.” (Saint Francis Memorial Hospital v. State Dept. of Public
Health (2020) 9 Cal.5th 710, 725 (Saint Francis).)
In the more recent discussion of the equitable tolling
doctrine in Saint Francis, the Court explained that “one scenario
under which equitable tolling may apply [is when] a plaintiff
pursues one of several available legal remedies, causing it to miss
the statute of limitations for other remedies it later wishes to
pursue. Yet such facts are far from the only circumstances under
which the doctrine may apply. To determine whether equitable
15
tolling may extend a statute of limitations, courts must analyze
whether a plaintiff has established the doctrine’s three elements:
timely notice to the defendant, lack of prejudice to the defendant,
and reasonable and good faith conduct by the plaintiff.” (Saint
Francis, supra, 9 Cal.5th at pp. 725–726.)
Although the trial court did not apply the three-part
analysis of Saint Francis, Technicolor contends that Metabyte’s
failure to plead the pursuit of an alternative legal remedy
seeking to lessen its injuries or damages goes to all three
elements of the doctrine. This is, in effect, an argument that only
the pursuit of such a remedy can qualify for equitable tolling.
That argument is simply not consistent with the clear statement
in Saint Francis that pursuit of an alternate legal remedy is not
the only factual scenario in which equitable tolling may apply.
Put differently, if the notice, no prejudice, and reasonable
elements of equitable tolling could be satisfied only by pursuing a
legal remedy to lessen damages in a different forum, then a legal
remedy to lessen damages would de facto be a requirement of
equitable tolling. It is not.
As the Ninth Circuit has perceptively summarized, “each of
the three factors in California’s test for equitable tolling requires
a practical inquiry. At a minimum, determining the applicability
of equitable tolling necessitates resort to the specific
circumstances of the prior claim: parties involved, issues raised,
evidence considered, and discovery conducted. Thus, the question
ordinarily requires reference to matters outside the pleadings,
and is not generally amenable to resolution on a [Federal Rules of
Civil Procedure,] [r]ule 12(b)(6) motion, where review is limited to
the complaint alone. [Citations.] [¶] California’s fact-intensive
test for equitable tolling is more appropriately applied at the
16
summary judgment or trial stage of litigation.” (Cervantes,
supra, 5 F.3d at p. 1276, fn. omitted.) That is the situation here.
Still, Metabyte, like all plaintiffs seeking equitable tolling, must
allege facts which if true would satisfy the three factors.
As we discuss below, Metabyte has alleged facts sufficient
to satisfy the first two factors. Technicolor does not agree with
those facts. Technicolor argues that the failure to pursue a legal
remedy goes to the notice factor because “a completely unrelated
first action affords the defendant little notice of anything. (See
Daviton v. Columbia/HCA Healthcare Corp. (9th Cir. 2001)
241 F.3d 1131, 1141.)” However one characterizes the Article 145
proceeding as alleged in the complaint, it cannot fairly be
described as “completely unrelated” to this action. In Daviton,
the Court noted that California’s law of equitable tolling
“requires that the same wrong serve as the predicate for the
earlier and later proceedings to make sure defendant received
proper notice. . . . [¶] While it is probably true that knowing what
remedy plaintiff is seeking will affect how defendant prepares to
defend itself, once defendant is aware of the wrong, the purpose
of the statute of limitations has been served.” (Ibid.) Here, as
alleged, the same wrong served as the predicate for both the
Article 145 proceeding and this action: Technicolor’s alleged
wrongful auction of MNI’s patent rights. To the extent that
Technicolor contends the destruction of documents was the wrong
serving as the predicate to the Article 145 proceedings, Metabyte
has alleged, in effect, that destruction of documents is not a
wrong under French law. Thus, Metabyte has alleged sufficient
facts to satisfy the notice requirement.5
5 Technicolor specifically contends Metabyte failed to allege
Technicolor received notice of the French criminal proceeding.
17
Technicolor next contends that the failure to pursue a legal
remedy goes to the prejudice factor “because a defendant can’t
adequately investigate and prepare a defense based on the facts
of a completely unrelated action. (See [Cervantes, supra, 5 F.3d
at p.] 1275.)” Again, as alleged, the Article 145 proceeding is not
completely unrelated to the present action. Further, in
Cervantes, the court explained “the focus of [the prejudice] factor
is whether the facts of the two claims are ‘at least so similar that
the defendant’s investigation of the first claim will put him in a
position to fairly defend the second.’ [(Collier v. City of Pasadena
(1983) 142 Cal.App.3d 917, 925.)] ‘The critical question is
whether notice of the first claim affords the defendant an
opportunity to identify the sources of evidence which might be
needed to defend against the second claim.’ [Citation.]”
(Cervantes, at p. 1276.) Here, as alleged, the facts of wrongdoing
in the Article 145 proceeding are very similar, if not identical to,
the facts alleged in this action, and Technicolor actively contested
the Article 145 proceeding. This process, as alleged, certainly
gave Technicolor the opportunity to prepare a defense.
Finally, Technicolor contends that failure to pursue an
alternate legal remedy also goes to the reasonableness factor
because “the pursuit of a lesser relief—particularly where that
lesser relief is unnecessary for the pursuit of relief that will
actually lessen the damage or injury claimed—is not diligent
pursuit of one’s claims. (See, e.g., Tannhauser v. Adams (1947)
While we agree that Metabyte provided only a broad six-month
period, as we discuss below, the Article 145 proceeding appears to
have still been pending in France during this period, tolling the
statute of limitation until the end of the period. Thus, notice
during that time was sufficient.
18
31 Cal.2d 169, 177 (Tannhauser).)” We do not see the words
“lesser” or “unnecessary” anywhere in Tannhauser. The page
citation provided by Technicolor contains a discussion of the
plaintiff’s failure to diligently pursue his first action, which was
dismissed for lack of prosecution. Equitable tolling, however,
may apply “even in circumstances where the plaintiff voluntarily
terminated the alternate proceeding.” (McDonald v. Antelope
Valley Community College Dist. (2008) 45 Cal.4th 88, 111.)
Technicolor has nevertheless raised, perhaps inadvertently,
the key issue on this appeal concerning the equitable tolling
doctrine: what are the requirements of the third factor—
reasonable and good faith conduct by plaintiff—and has Metabyte
satisfied them. As the Supreme Court has explained, this
element plays a key role in limiting the scope of equitable tolling.
This element includes both an objective and subject requirement
because doing so “precludes the doctrine from being ‘a cure-all for
an entirely common state of affairs,’ while ensuring that it
provides a narrow form of relief in ‘unusual circumstances’ when
justice so requires.” (Saint Francis, supra, 9 Cal.5th at p. 730.)
Conversely, “if we were to apply equitable tolling to situations
when a party demonstrates only reasonable conduct or good
faith––but not both––we would risk shaping the doctrine into one
that becomes a norm instead of an exception.” (Ibid.)
Even a preliminary assessment of whether Metabyte’s
filing of the Article 145 proceedings satisfies the third factor
requires information not alleged in the complaint. The current
allegations show that Metabyte acted reasonably in filing an
Article 145 proceeding, but only if it were objectively reasonable
to try to hold Technicolor accountable in a French court. Put
differently, if pursuing a civil action in France was reasonable,
19
then, under the allegations of the complaint, it was reasonable to
begin that process with an Article 145 proceeding. But that does
not answer the question of whether pursuing legal action in
France was objectively “fair, proper, and sensible in light of the
circumstances.” (Saint Francis, supra, 9 Cal.5th at p. 729.)
Similarly, the complaint does not allege facts which would
answer the question of whether Metabyte acted in good faith,
that is, with a “ ’state of mind denoting honesty of purpose,
freedom from intention to defraud, and, generally speaking, . . .
being faithful to one’s duty or obligation.’ ” (Ibid.)6 While the
assessment of this factor will almost certainly require resolution
of factual disputes, the complaint must at least allege facts which
could support such a conclusion. It currently does not.
Accordingly, we affirm the order sustaining the demurrer
on the alternate ground that the complaint fails to allege facts
sufficient to show that Metabyte acted objectively reasonably and
subjectively in good faith in electing to seek to hold Technicolor
liable in France. Metabyte, however, is given leave to amend its
complaint to cure this deficiency. We reverse the order insofar as
it requires a legal remedy which seeks to lessen damages and
which holds that Article 145 proceedings can never satisfy the
requirements for equitable proceedings.
C. The Delayed Discovery Allegations Are Adequate
Technicolor contends the demurrer should be sustained on
the alternate ground that Metabyte failed to allege facts
sufficient to support the application of the delayed discovery rule.
6 To be clear, nothing in the allegations of the complaint
would bar a finding of objective reasonableness or subjective good
faith.
20
The trial court expressly rejected this claim, finding that the
complaint “[r]ead liberally, . . . sufficiently establishes that
Plaintiff did not discover its injury until 2012.” Technicolor
contends that the trial court erred. We do not agree.
“A plaintiff has reason to discover a cause of action when he
or she ‘has reason at least to suspect a factual basis for its
elements.’ [Citations.] Under the discovery rule, suspicion of one
or more of the elements of a cause of action, coupled with
knowledge of any remaining elements, will generally trigger the
statute of limitations period. [Citations.] . . . [B]y [previously]
discussing the discovery rule in terms of a plaintiff’s suspicion of
‘elements’ of a cause of action, [we were] referring to the ‘generic’
elements of wrongdoing, causation, and harm.” (Fox v. Ethicon
Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807 (Fox).) Put
differently, under the discovery rule, “the statute of limitations
begins to run when the plaintiff suspects or should suspect that
her injury was caused by wrongdoing.” (Jolly v. Eli Lilly & Co.
(1988) 44 Cal.3d 1103, 1110.)
We note preliminarily that resolution of the statute of
limitations issues, including delayed discovery, is normally a
question of fact. (Fox, supra, 35 Cal.4th at p. 810.) For purposes
of a demurrer, we take the allegations of the complaint as true,
and liberally construe them.
In sum, as set forth in the Background section above,
Metabyte alleged it was suspicious of wrongdoing, that is, that
the auction was rigged, but not suspicious that it was injured by
the rigging; this is necessarily an allegation that it was not
suspicious of causation. Metabyte clearly alleged it believed the
patents were worth only a few million dollars and that the
patents would have had to be worth over $16 million for
21
Metabyte to have suffered damages. Put differently, the rigging
of the auction may have resulted in an artificially low price for
the patents, but Metabyte believed that it suffered no injury as a
result of that low price.
Technicolor contends Metabyte failed to allege what new
facts it learned in June 2012 that were essential to its complaint.
Not so. Mehta alleged that upon reading about the Quinta
lawsuit, he learned there was evidence that Technicolor had
invested in Quinta, forced it into bankruptcy and allegedly
wrongfully acquired Quinta’s technology assets for € 700,000
when the technology was actually worth € 36,000,000. This made
Mehta suspicious that the MNI patent portfolio was worth more
than $16 million. Read liberally, Technicolor’s behavior with
Quinta, culminating in a huge disparity in price between what
Technicolor paid and what the technology was worth made Mehta
suspicious that Technicolor’s very similar behavior with MNI had
also resulted in a huge price disparity. Since this suspicion
started the statute of limitations running in June 2012, the exact
date thereafter when Metabyte learned the true value of the
patents does not matter for purposes of demurrer.
Technicolor relatedly contends Metabyte did not exercise
diligence, that is, Metabyte should have discovered Technicolor’s
wrongdoing earlier. Metabyte alleged specific conduct and
statements by Technicolor board members and officers and a
Technicolor-employed MNI board member designed to conceal the
true value of the patents to minority shareholders of MNI, which
included Metabyte and Mehta. These allegations show a
fiduciary duty on the part of Technicolor, and when such a duty
exists, awareness of facts that would ordinarily call for
investigation does not excite suspicion. (See Bennett v. Hibernia
22
Bank (1956) 47 Cal.2d 540, 560.) Mehta alleged that he accepted
the conduct and statements.
Technicolor also contends Metabyte should be judicially
estopped by statements in its federal complaint and Article 145
application. Judicial estoppel requires that the party to be
estopped “ ’was successful in asserting the first position (i.e., the
tribunal adopted the position or accepted it as true).’ ” (Aguilar v.
Lerner (2004) 32 Cal.4th 974, 986.)
The district court did not adopt Metabyte’s claim that it
learned of its injury in 2012. The court specifically found the
pleading too vague and ruled that the RICO cause of action began
to accrue in 2009.
Technicolor does not explain how Metabyte was successful
in asserting that position in the French proceeding. The auction
was in December 2009; four years from that date would be
December 2013. Metabyte’s Article 145 proceeding was filed in
April 2013, and so appears to have been timely under French law
without regard to delayed discovery. It appears undisputed that
filing the application tolled the statute of limitations in France to
some degree. The allegations of the complaint suggest the Article
145 proceeding was still pending when the French criminal
complaint was filed, obviating the need for the French court to
consider delayed discovery in connection with that action.7 If
French law is to the contrary, or if Technicolor has a more cogent
argument about statements in the French proceedings, those
matters can and should be addressed in further proceedings on
remand.
7 Metabyte has represented that the Article 145 proceeding
was still pending at that point and, if necessary, it can and will
amend the complaint to so allege.
23
DISPOSITION
The judgment is reversed. We affirm the trial court’s
ruling sustaining the demurrer on the alternate ground that
Metabyte failed to adequately plead facts showing that its
decision to proceed in France was objectively reasonable and
subjectively in good faith. We grant Metabyte leave to amend
and remand for further proceedings. Respondents to pay costs on
appeal.
CERTIFIED FOR PUBLICATION
STRATTON, P. J.
We concur:
GRIMES, J.
WILEY, J.
24