Redisegno.com, S.A. de C.V. v. Barracuda Networks, Inc.

• Court: District Court, N.D. California
• Decided: July 22, 2021
• Docket: 5:20-cv-00316
• Status: Unknown

Opinion

1 2 UNITED STATES DISTRICT COURT 3 NORTHERN DISTRICT OF CALIFORNIA 4 SAN JOSE DIVISION 5 6 REDISEGNO.COM, S.A. DE C.V., Case No. 5:20-cv-00316-EJD

7 Plaintiff, ORDER GRANTING DEFENDANT’S MOTION FOR AN ORDER 8 v. REQUIRING PLAINTIFF TO POST AN UNDERTAKING 9 BARRACUDA NETWORKS, INC., et al., 10 Defendants. Re: Dkt. No. 40

11 Presently before the Court is Defendant Barracuda Networks, Inc.’s (“Barracuda”) motion 12 requesting an order requiring Plaintiff Redisegno.com, S.A. DE C.V. (“Redisegno”) to post an 13 undertaking for costs and attorney’s fees pursuant to California Civil Procedure Code § 1030. 14 Having considered the Parties’ papers, the Court GRANTS Barracuda’s motion.1 15 I. FACTUAL AND PROCEDURAL BACKGROUND 16 A. Factual Background 17 Redisegno is a Mexican corporation which provides hardware and software solutions in 18 Mexico and is a distributor of Barracuda’s products and services. Complaint (“Compl.”) ¶ 5, Dkt. 19 No. 1. On or about October 16, 2017, Redisegno through co-defendant Edgar Chake Corella 20 Flores (“Flores”) entered into a Reseller Agreement with Barracuda to become a 21 reseller/distributor of certain Barracuda “Products and Services.” Id. ¶ 19; Ex. A. 22 On or around June 4, 2015, a Mexican federal agency, Caminos y Puentes Federales de 23 Ingresos y Servicios Conexos (“CAPUFE”), solicited bids for a project aimed at retaining security 24 and information technology services and optimizing communication links related to the country’s 25

26 1 Pursuant to N.D. Cal. Civ. L.R. 7-1(b), this Court finds this motion suitable for consideration 27 without oral argument. Case No.: 5:20-cv-00316-EJD 1 infrastructure. Id. ¶ 21. Redisegno, then owned by Flores and his mother, successfully bid on the 2 contract, and formally entered into an agreement with CAPUFE on or about July 23, 2015. Id. ¶ 3 24. On August 11, 2015, Flores and his mother transferred their interest, shares, and rights in 4 Redisegno to Fact Leasing, S.A. de C.V. and to Mr. Carlos Alberto Lugo Vega (the “New 5 Owners”). Id. Redisegno alleges Flores led the New Owners to believe that Redisegno had 6 already purchased from Barracuda the IT products necessary to perform under the CAPUFE 7 contract. In fact, Redisegno only had demos of Barracuda’s product, which expired after six 8 months. Id. ¶ 27. Barracuda allegedly refused to supply equipment to Redisegno and disavowed 9 their relationship, despite assuring the Mexican Government that it would fully support 10 Redisegno’s bid. Id. ¶¶ 23, 27. The deadline for the equipment installation under the CAPUFE 11 contract was October 11, 2015. Id. ¶ 24. Because Barracuda would not provide the required IT 12 equipment to Redisegno, Redisegno failed to honor its commitments to CAPUFE and CAPUFE 13 administratively rescinded the contract on or about January 18, 2016. Id. ¶ 32. 14 B. Procedural History 15 On August 17, 2017, Redisegno filed a complaint against Barracuda in the Southern 16 District of Texas.2 There, Redisegno alleged two causes of action against Barracuda: (1) tortious 17 interference with an existing contract, and (2) breach of implied contract. On January 11, 2018, 18 the Texas district court dismissed the complaint for lack of personal jurisdiction and improper 19 venue. Redisegno filed this action on January 14, 2020 asserting claims against Barracuda for (1) 20 breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) breach of 21 implied contract, (4) tortious interference, and (5) conspiracy. See generally Compl. Following a 22 motion for judgment on the pleadings, the Court found that Redisegno’s fourth and fifth claims 23 were barred by the applicable statute of limitations. See Order Granting Defendants’ Motion for 24 Judgment on the Pleadings (“MJP Order”) at 8, Dkt. No. 28. Thus, Redisegno’s only remaining 25

26 2 The Court previously took judicial notice of Redisegno’s complaint from the Southern District of Texas as it is a matter of public record. MJP Order at 2-3; see also Request for Judicial Notice 27 (“RJN” ) Ex. A, Dkt. No. 25. Case No.: 5:20-cv-00316-EJD 1 claims against Barracuda are for breach of contract, breach of the implied covenant of good faith 2 and fair dealing, and breach of implied contract. 3 Barracuda has now filed this motion to require an undertaking by Redisegno in the amount 4 of $450,000 to secure its reasonably anticipated costs pursuant to California Civil Procedure Code 5 § 1030. See Motion for an Order Requiring Plaintiff to Post and Undertaking (“Mot.”), Dkt. No. 6 40. Redisegno filed an opposition (“Opp’n”), to which Barracuda has filed a reply (“Reply”). 7 Dkt. Nos. 44, 46. 8 II. LEGAL STANDARD 9 The Ninth Circuit has addressed the framework for the relief sought herein:

10 There is no specific provision in the Federal Rules of Civil Procedure relating to security for costs. However, the federal district courts have 11 inherent power to require plaintiffs to post security for costs. “Typically federal courts, either by rule or by case-to-case 12 determination, follow the forum state’s practice with regard to security for costs, as they did prior to the federal rules; this is 13 especially common when a non-resident party is involved.” 14 Simulnet E. Assocs. v. Ramada Hotel Operating Co., 37 F.3d 573, 574 (9th Cir. 1994) (quoting 10 15 Wright, Miller & Kane, Federal Practice and Procedure: Civil 2nd § 2671). Accordingly, the 16 application of California procedure is a matter within this Court’s discretion. 17 Here, the Court is guided by California Civil Procedure Code § 1030. Section 1030 18 provides, “[w]hen the plaintiff in an action . . . resides out of the state, or is a foreign corporation, 19 the defendant may at any time apply to the court by noticed motion for an order requiring the 20 plaintiff to file an undertaking to secure an award of costs and attorney’s fees which may be 21 awarded in the action. . . .” Cal. Civ. Pro. Code § 1030(a). “The purpose of the statute is to enable 22 a California resident sued by an out-of-state resident ‘to secure costs in light of the difficulty of 23 enforcing a judgment for costs against a person who is not within the court’s jurisdiction’” and to 24 prevent out-of-state residents from filing frivolous lawsuits against California residents. Alshafie 25 v. Lallande, 171 Cal. App. 4th 421, 428 (2009) (quoting Yao v. Superior Ct., 104 Cal. App. 4th 26 327, 331 (2002)). 27 Case No.: 5:20-cv-00316-EJD 1 A defendant requesting that the Court order a plaintiff to post an undertaking must 2 establish a “reasonable possibility that the moving defendant will obtain judgment in the action or 3 special proceeding.” Cal. Civ. Proc. Code § 1030(b). This Court has previously noted that the 4 “reasonable possibility” standard is relatively low. See GeoTag, Inc. v. Zoosk, No. C-13–0217 5 EMC, 2014 WL 793526, at *3 (N.D. Cal. Feb. 26, 2014). Thus, a defendant need not show that 6 there is “no possibility” that plaintiff would win at trial, “but only that it [is] reasonably possible 7 that the defendant will] win.” Baltayan v. Est. of Getemyan, 90 Cal. App. 4th 1427, 1432 (2001). 8 At the same time, the “reasonable possibility” standard is not so low as to be non-existent. The 9 Court declines to read § 1030 so broadly as to require every out-of-state litigant who brings a non- 10 frivolous suit in California to post a bond simply because there is a reasonable chance the 11 defendant may prevail. 12 As the Ninth Circuit, speaking generally about bond requirements such as § 1030, has 13 noted, “‘[w]hile it is neither unjust nor unreasonable to expect a suitor to put his money where his 14 mouth is, tollbooths cannot be placed across the courthouse doors in a haphazard fashion.’” 15 Simulnet, 37 F.3d at 576 (quoting Aggarwal v. Ponce Sch. of Med., 745 F.2d 723, 727–28 (1st Cir. 16 1984)). This concern is rooted in the fact that courts must take care “not to deprive a plaintiff of 17 access to the federal courts.” Id. Accordingly, the Court agrees with those district courts located 18 in California which have held that, in applying § 1030, a court must consider not only the extent of 19 the requested bond, but also the “degree of probability/improbability of success on the merits, and 20 the background and purpose of the suit.” Gabriel Techs. Corp. v. Qualcomm Inc., No. 08 CV 21 1992 MMA POR, 2010 WL 3718848, at *2 (S.D. Cal. Sept. 20, 2020); see also Susilo v. Wells 22 Fargo Bank, N.A., No. CV 11–1814 CAS PJWX, 2012 WL 5896577 (C.D. Cal. Nov. 19, 2012) 23 (same); Plata v. Darbun Enterprises, Inc., No. 09CV44–IEG(CAB), 2009 WL 3153747, at *12 24 (S.D. Cal. Sept. 23, 2009) (same). 25 III. DISCUSSION 26 Although Redisegno, a company based in Mexico, qualifies as a foreign corporation, the 27 Case No.: 5:20-cv-00316-EJD 1 Parties dispute whether Barracuda can show a reasonable possibility of prevailing on the merits of 2 Redisegno’s remaining claims. The Court concludes that Barracuda has a reasonable possibility 3 of prevailing, but that Redisegno need only post a fraction of the undertaking Barracuda seeks. 4 A. Reasonable Possibility of Judgment in Barracuda’s Favor 5 Barracuda first argues there is a reasonable probability that it will prevail on the merits 6 because Redisegno lost all rights under the Reseller Agreement after its prior owners sold their 7 rights in the company without Barracuda’s consent. Barracuda relies on the general provision in 8 the Reseller Agreement and argues terms included in the general provision conditioned 9 Redisegno’s continuing rights under the Reseller Agreement, following a 50% (or greater) change 10 in control, on Barracuda’s consent. Mot. at 8. Moreover, Barracuda asserts that the terms in the 11 general provision represent the Parties’ intent to treat a change in control as an assignment of 12 rights to a third-party, which required Barracuda’s consent. Id.; see also Compl., Ex. A ¶ 7. 13 Accordingly, Barracuda posits that because it did not consent to Redisegno’s sale to the New 14 Owners, it was relieved of further performance obligations. And therefore, Barracuda cannot be 15 liable for claims arising out of the original Reseller Agreement relationship with Redisegno. 16 In its opposition Redisegno argues that the Reseller Agreement did not condition its 17 owners’ ability to assign their rights on the consent of Barracuda. Opp’n at 4. The terms in the 18 general provision of the Reseller Agreement, however, appear to contradict Redisegno’s argument. 19 Given that the Reseller Agreement expressly dictates that Barracuda would be able to assign its 20 rights without any prior consent and also that an assignment had to be “permitted,” Barracuda’s 21 success on both the express and implied contract-based claims is at least reasonably possible. 22 Barracuda also argues that even if a viable contract existed between itself and the New 23 Owners of Redisegno, any alleged breach occurred outside the applicable statute of limitations. 24 Mot. at 11-13. Under California law, contract-based claims are subject to a four-year statute of 25 limitations. See Cal. Civ. Proc. Code § 337. Redisegno alleges that it “expected [Barracuda] to 26 perform under the contract by October 11, 2015” and that following this, it “then attempted to 27 Case No.: 5:20-cv-00316-EJD 1 resolve the issue of [Barracuda’s] lack of performance” until January 18, 2016 when CAPUFE 2 administratively rescinded its contract with Redisegno. Compl. ¶¶ 24, 27, 32. The expectation 3 that Barracuda would perform under the contract by October 11, 2015 creates the reasonable 4 possibility that Barracuda will attain a judgment against Redisegno because its claims are time 5 barred.3 6 B. Additional Factors 7 As discussed above, courts should also “balance several factors in assessing the propriety 8 of requiring a plaintiff to post security for costs, including whether the litigation has ‘the 9 appearance of vexatiousness’ and: (i) the degree of probability/improbability of success on the 10 merits, and the background and purpose of the suit; (ii) the reasonable extent of the security to be 11 posted, if any, viewed from the defendant’s perspective; and (iii) the reasonable extent of the 12 security to be posted, if any, viewed from the nondomiciliary plaintiff’s perspective.” A. Farber 13 & Partners, Inc. v. Garber, 417 F. Supp. 2d 1143, 1146 (C.D. Cal. 2006) (citing Simulnet, 37 F.3d 14 at 576). 15 Although the record in this case does not have the appearance of vexatiousness in and of 16 itself to justify posting an undertaking, the second Simulnet factor is similar to the second factor 17 under California Civil Procedure Code § 1030. See A. Farber &Partners, 417 F. Supp. 2d at 18 1148. Because Barracuda has already demonstrated that it has a reasonable possibility of 19 succeeding on the contract-based claims asserted against it, this weighs in favor of requiring a 20 security. Nonetheless, consideration of the reasonable extent of the undertaking to be posted 21

22 3Redisegno argues that its claims are not time barred because the doctrine of equitable tolling applies. However, the Court previously found that equitable tolling did not apply since Redisegno 23 waited more than two years after the Southern District of Texas dismissed its action to refile suit. MJP Order at 7. Moreover, there can be no equitable tolling for claims which have never been 24 pleaded. The statute of limitations is equitably tolled only on claims in a second-filed action during the pendency of identical claims in a first-filed action that was pursued in a different forum. Mitchell 25 v. Snowden, No. 215CV1167TLNACP, 2016 WL 5407858, at *5 (E.D. Cal. June 10, 2016). In the Southern District of Texas case, Redisegno never pleaded a claim for breach of written contract. 26 Redisegno’s sole contract-based claim was for breach of implied contract. Therefore, there is still a reasonable possibility that Barracuda will attain judgment because the claims asserted against it are 27 time barred. Case No.: 5:20-cv-00316-EJD 1 requires the Court to reduce the amount Barracuda seeks. Barracuda does not point to any actions 2 || taken by Redisegno or provide sufficient information about the financial state of Redisegno’s 3 business which suggest Barracuda will have difficulty enforcing a judgment for attorney fees and 4 || costs were it to prevail to justify the amount requested. The Court does not find Redisegno’s 5 difficulties with effectuating service against other defendants in Mexico to be persuasive evidence 6 || for this amount. 7 Barracuda claims that it has already incurred $50,355 to date in attorney fees and costs and 8 || “conservatively estimates that it may incur an additional $400,000. See Decl. of Jeffrey J. 9 || Lederman (“Lederman Decl.”) {ff 2-3, Ex A., Dkt. No. 40-1. Redisegno disputes the 10 || reasonableness of both amounts, but does not provide the Court with a figure that it could 11 reasonably post as a security—it argues only that the $450,000 figure is not justified and 12 || excessive. Opp’n at 8. Given the absence of such context, the Court shall require Redisegno to 5 13 post a bond in the amount of $250,000. Such an amount will protect the fees and costs that 14 || Barracuda has already incurred, but will help ensure that Redisegno can continue its participation 3 15 in this action. 16 || Iv. CONCLUSION 3 17 Accordingly, the Court GRANTS Barracuda’s motion to require Redisegno to post an 18 undertaking in the amount of $250,000 within 30 days of the date of this Order. This Order is 19 entered without prejudice to Barracuda applying to increase the required bond if the current bond 20 || is shown to be inadequate. 21 IT IS SO ORDERED. 22 || Dated: July 22, 2021

24 EDWARD J. DAVILA 25 United States District Judge 26 Case No.: 5:20-cv-00316-EJD 28 || ORDER GRANTING DEFENDANT’S MOTION FOR AN ORDER REQUIRING PLAINTIFF TO POST AN UNDERTAKING _