Summary
granting summary judgment and finding statute of limitation was not equitably tolled where defendants in second suit were officers of the company which was sued in first suit
Summary of this case from Neil v. Dan ParkOpinion
No. C 01-02180 CRB
August 19, 2002
MEMORANDUM AND ORDER
High Country Linens ("HCL") filed this suit against Greg Block; Steve Block; and Jeff Block ("Blocks") on June 5, 2001. On August, 22, 2001, HCL filed a first amended complaint ("FAC"). At the relevant times, the Blocks were officers of American Pacific Enterprises ("APE"). A previous suit against APE by HCL was stayed when APE filed for bankruptcy. HCL, in its first amended complaint, asserts ten claims against the Blocks: common law trademark infringement, trade dress infringement, three claims of interference with contractual relations, negligent interference with contractual relations, false advertising, unfair competition, interference with prospective economic advantage, and copyright infringement.
Now before the Court is defendants' motion for summary judgment motion based on statute of limitations for the following state law claims: interference with contractual relations, negligent interference with contractual relations, interference with prospective economic advantage, common law trademark infringement, and unfair competition. Having carefully considered the papers submitted by the parties, and having had the benefit of oral argument on August 9, 2002, the motion is GRANTED.
BACKGROUND
Plaintiff HCL is a New York corporation registered to do business in California, which owns a 35,000 square foot distribution center in City of Industry, California FAC ¶ 5. HCL sells bed linens throughout the United States. Id. at ¶ 6.
Defendant Greg Block resides in California, is currently the Chief Executive Officer of American Pacific Enterprises ("APE"), and was an officer at APE for the period 1996-98. Id. at ¶ 7. Defendants Steve and Jeff Block were co-CEOs of APE for the period 1996-98. Id. at ¶¶ 9-10. APE has an office in San Francisco and does a "substantial amount of business" in California. Id. at ¶¶ 8, 13.
In late 1995, plaintiff commissioned the Ren Feng Cloth Mill in Ningbo City, China to produce high thread count bed linens. Id. at ¶¶ 20, 18. The Ren Feng Cloth Mill was and is one of the few mills in China capable of producing high thread count bed linens. id. at ¶ 19. Based on its commission with the Ren Feng Cloth Mill, plaintiff obtained sales orders from national retail chains such as Bloomingdale's, Bed, Bath Beyond, Strouds, and Linens'n Things. Id. at ¶ 22. Around November 1996, plaintiff established three lines of bed linens marketed under three different marks: VERSAILLES, CLASSIQUE, and LIMOGES. Id. at ¶ 23. Plaintiff's sales of bed linens, for all three lines, reached approximately $4 million in 1996 and $9.6 million in 1997. Id. at ¶ 24. Plaintiff projected that sales would have reached approximately $12 millionin 1998 and $20 millionin 1999. Id.
Plaintiff believes that around late 1997, defendants learned of HCL's successful bed linens lines and directed APE to "unfair[ly] compete" with HCL. Id. at ¶ 36. Around July 1997, defendants approached the Ren Feng Cloth Mill offering more money for similar products, persuaded the mill to convert some of its machines to APE products, and thus caused the breach of its contract with HCL. Id. at ¶ 62. This breach caused plaintiff to lose sales and profits. Id. at ¶ 67. After this initial breach, plaintiff entered into a second agreement with the mill around January 1998. id. at ¶ 70. Defendants also caused the mill to break this second agreement resulting in a further loss of sales for plaintiff and the loss of two of its customers, Strouds and Bed, Bath Beyond. Id. at ¶ 74. In March 1998, plaintiff entered into a third agreement with the null Id. at ¶ 82. In June 1998, defendants directed APE to pursue a joint venture with the Ren Feng Cloth Mill Id. at ¶ 86. At the end of July 1998, the mill breached the third agreement by ending its production of liner is for plaintiff id. at ¶ 87.
In late 1998, APE allegedly began marketing a competing brand under the VALENCIA mark allegedly similar to plaintiff's VERSAILLES mark Id. at ¶¶ 36-37. During this time, APE also allegedly sought to disrupt the plaintiff's contract with the Ren Feng Cloth Mill and conspired with Bed, Bath Beyond to make a product with a similar fabric pattern Id. at ¶ 25.
According to the complaint, as a result of these actions, defendants substantially increased the profits of APE and were able to sell their interest in the company to Glenoit for $39 million in October 1998. Id. at ¶ 26. The defendants also received, from Glenoit, a bonus of $9 million in 1999. Id. at ¶ 27.
On June 21, 1999, HCL filed suit, in this Court against APE for almost all the same claims that have been pled against the current defendants (Case No. 99-3030). In August 2000, APE filed for bankruptcy and the June 1999 suit was stayed.
The instant case against the Blocks individually was filed June 5, 2001. On October 19, 2001, this Court denied defendants' motion to dismiss or stay pending the outcome of the APE bankruptcy proceeding.
DISCUSSION
I. Summary judgment standard
"While resolution of the statute of limitations issue is normally a question of fact, where the uncontradicted facts established through discovery are susceptible of only one legitimate inference, summary judgment is proper." Jolly v. Eli Lilly Co., 44 Cal.3d 1103, 1112 (1988). See also Romano v. Rockwell Internet. Inc., 14 Cal.4th 479, 487 (1996) (quoting Jolly summary judgment standard).
II. Statutes of limitations
Notably, in its papers, the plaintiff does not challenge any of the defendants' arguments regarding the applicable California statutes of limitations. Instead, plaintiff argues that New York law should govern and, in the alternative, that the claims should be equitably tolled under California law. These arguments will be discussed insections III and IV.
Plaintiff's interference with contractual relations claims are time-barred by a two-year statute of limitations established by Cal. Civ. Proc. Code § 339. See Forcier v. Microsof Corp., 123 F. Supp.2d 520, 530 (N.D. Cal. 2000.) Negligent inerference with contractual relations is a valid claim and is also time-barred by Cal. Civ. Proc. Code § 339. See J'Aire Corp. v. Gregory, 24 Cal.3d 799 (1979). Plaintiffs claim of interference with prospective economic advantage is also time-barred by the two-year statute of limitations established by Cal. Civ. Proc. Code § 339. See Stutz Motor Car of Am., Inc. v. Reebok Int'l. ltd., 909 F. Supp. 1353, 1361 (C.D. Cal. 1995) (interpreting Cal. Civ. Proc. Code § 339 as "providing that [a] claim based on obligation not founded on instrument of writing such as interference with prospective advantage, must be brought within two years"). Plaintiff's common law trademark infringment claim is also limited by Cal. Civ. Proc. Code § 339. See Mission Imports. Inc. v. Superior Court 31 Cal.3d 921, 931 (1982) (holding that an "action for trademark infringement sounds in tort"); See Murphy v. Hartford Acc. Indem. Co., 177 Cal App.2d 539, 544 (1960) (holding that Cal. Civ. Proc. Code § 339 overns the statute of limitations for torts).
Cal. Bus. Prof Code § 17082 establishes the penalties for violations Cal. Bus. Prof. Cods 17200, et. seq. In G.H.I.I. v. MTS. Inc. 983), the court held that since Bus. Prof Code § 17082 establishes mandatory treble for a violation of the Unfair Practices Act, it is governed by Cal. Civ. Proc. Code § 340. See also Meneffee v. Ostawari, 228 Cal.App.3d 239, 243 (1991) (same). Cal. Civ. Proc. Code § 340 establishes a one-year statute of limitations for an "action upon a statute for a penalty" such as treble damages.
III. Choice of law
In its opposition, plaintiff first argues that New York rather than California, statutes of limitations should apply to its claims. The parties agree that this Court should apply California's "governmental interest" approach in selecting applicable law.
The "governmental interest" approach is explained in Coufal Abogados v. AT T. Inc., 223 F.3d 932, 934 (9th Cir. 2000):
First, the court examines the substantive law of each jurisdiction to determine whether the laws differ as applied to the relevant transaction. Second, if the laws do differ, the court must determine whether a "time conflict" exists in that each of the relevant jurisdictions has an interest in having its law applied. If only one jurisdiction has a legitimate interest in the application of its of decision, there is a false conflict and the law of the interested jurisdiction is applied. On the other hand, if more than one jurisdiction has a legitimate interest, the court must move to the third stage of the analysis, which focuses on the comparative impairment of the interested jurisdictions. At this stag, the court seeks to identify and apply the law of the state whose interest would be the more impaired if its law were not applied.
Id. (citations omitted).
A. Difference in laws
In the present case, the statutes of limitations differ. Both parties agree that, in New York; interference with contract and prospective economic advantage claims have three-year statutes of limitations.
B. "True conflict"
Plaintiff relies on Aalmuhammed v. Lee, 202 F.3d 1227, 1237 (9th Cir. 2000), to argue that a New York plaintiff can apply New York law to an action against California defendants in a California the plaintiff was invited by actor Denzel Washington to assist him in preparing for the title role in Spike Lee's movie, Malcolm X Id. at 1229. Plaintiff Aalmuhammed was knowledgeable both about the life of Malcolm X and the practice of islam. Id. Aalmuhammed worked on site, in both New York and Egypt, in various capacities including, to some extent directing, writing translation, and editing. Id. at 1230. The plaintiff did not work with a contract but did receive some compensation from Spike Lee and Denzel Washington. Id. In reviewing the case, the Ninth Circuit analyzed the choice of law issue with respect to Aalmuhammed's quantum meruit claim. Id. at 1236-37. In deciding that the New York statute of limitations should apply to that claim, the Ninth Circuit held that "New Yorks interest in governing the remedies available to parties working in New York is far more significant" than California's "interest in protecting its residents from stale claims arising from work done outside the state." Id. at 1237.
In response, defendants argue that because they all reside in California, the case was brought in California, and some of the acts of interference took place in this state that California has a legitimate interest in this dispute (and that New York has none).
In the present case, as in Aalmuhammed, a New York entity is pursuing a claim against a California defendant for injuries could have occurred, at least in part, in New York. See id. Accordingly, New York may have a legitimate interest in this claim. On the other hand, California clearly has a legitimate interest in eliminating stale claims against California defendants arising from actions that took place, at least in part, in California
C. "Comparative impairment"
The Ninth Circuit's analysis in Aalmuhammed, 202 F.3d at 1237, begins by noting that the "question is which state's interest would suffer more by the application of the other's law" (citing Waggoner v. Snow, Becker, Kroll, Klaris Krauss, 991 F.2d 1501, 1507 (9thCir. 1993)).
The facts in this particular case favor enforcing California law as both parties' ties to California are more "substantial, immediate and concrete" than to New York Id. As plaintiff points out, it is a New York corporation. But, as defendants more convincingly argue, plaintiff is registered to do business in California and has a 35,000 square foot distribution facility in California Also, while plaintiffs headquarters are located in New York; its sales occur throughout the country-including California-with no indication that more of its sales occur in New York than any other state. FAC ¶ 32. Indeed, the entire focus of this case is the allegedly illegal conduct of defendants, which was apparently orchestrated out of California, since defendants reside in California and APE has an office in San Francisco. Lastly, the plaintiff chose to file this suit in the Northern District of California, which suggests that even plaintiff, at one point, thought this action was centered here.
III. Equitable tolling
Plaintiff argues that even if it is subject to California law, it is entitled to equitable tolling of the statute of limitations as a result of the action previously filed against APE. Generally speaking California courts "have liberally applied tolling rules or their functional equivalents to situations in which the plaintiff has satisfied the notification purpose of a limitations statute," Elkins v. Derby, 12 Cal.3d 410, 418 (1974). However, plaintiffs pursuit of another remedy equitably tolls the statute of limitations only where three conditions are satisfied
1. timely notice to the defendant in filing the first action,
2. lack of prejudice to the defendant in gathering evidence for the second action, and
3. reasonable and good faith conduct on the part of the plaintiff in filing the second action.
Cervantes v. City of San Diego, 5 F.3d 1273, 1275 (9thCir. 1993).
Equitable tolling is not appropriate here because the filing of the first action against APE did not put the Blocks on notice that they would be sued. Plaintiffs argument that the Blocks knew about the previous suit against APE misses the point. Defendants do not contend they had no knowledge of the previous suit against APE. They contend that such knowledge does not constitute notice for purposes of equitable tolling. The Court agrees.
In Garabedian v. Skochko, 232 Cal.App.3d 836, 847 (1991), the court held that "the doctrine of equitable tolling does not apply merely because defendant B has obtained timely knowledge of a claim against defendant A for which defendant B knows or believes he may share liability." In court held that even though the defendant knew of the first suit against the first defendant, equitable tolling is only proper when the second suit is against the same parties. Id. at 847-48.
Indeed, the fact that plaintiff named APE, and not the Blocks individually, as defendant in the first case may have signaled to the Blocks that plaintiff did not hold them individually responsible for its injury. This reasonability of this inference is highlighted by the fact that all of the facts underlying a claim against the Blocks individually were known to plaintiff when it filed the first suit.
Plaintiff's arguments regarding Fed. R Civ. P. 15(c) are inapposite. That rule applies where "but for a mistake concerning the identity of the proper party, the action would have been brought against the party."
Since, for purposes of equitable tolling, the mere knowledge of a previous suit against defendants' company does not constitute notice of suit against the defendants, the statutes of limitations is not equitably tolled and these claims are barred.
CONCLUSION
For the foregoing reasons, defendants' motion for partial summary judgment is GRANTED.
IT IS SO ORDERED.