Total Recall Technologies v. Palmer Luckey

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 19, 2018
• Docket: 17-15668
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 19 2018 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

TOTAL RECALL TECHNOLOGIES, No. 17-15668

Plaintiff-Appellant, D.C. No. 3:15-cv-02281-WHA

v. MEMORANDUM* PALMER LUCKEY and 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 March 15, 2018 San Francisco, California

Before: WALLACE and BERZON, Circuit Judges, and BERG,** District Judge.

Plaintiff appeals from summary judgment on its breach of contract claim

against Defendants. It also appeals from the dismissal of its conversion and breach

of implied covenant of good faith claims. We affirm in part and reverse and

* 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. remand in part.

1. The district court erred in concluding that state law governed the procedural

question of whether Defendants can challenge Plaintiff’s authority to file

this action. See Cuprite Mine Partners LLC v. Anderson, 809 F.3d 548, 554

(9th Cir. 2015). We remand for the district court to consider this question in

the first instance under federal law, including the possible applicability of

either Federal Rule of Civil Procedure 9(a)(1)(A) or 9(a)(1)(B). De Saracho

v. Custom Food Mach., Inc., 206 F.3d 874, 878 (9th Cir. 2000).

Specifically, the district court should consider whether the issue of a

partner’s authorization to sue on behalf of a partnership is one of “capacity”

within the meaning of Rule 9(a)(1)(A), or “authority” within the meaning of

Rule 9(a)(1)(B), or whether there is some other basis on which Defendants

can raise the issue. If the district court concludes that a partner’s

authorization to sue on behalf of a partnership is an issue of “capacity” or

“authority” under Rule 9(a), then it should determine whether Plaintiff

offered facts sufficient to establish its authority or capacity to sue. The

district court should also consider whether, even if Defendants could raise

the issue, and even if Plaintiff’s attempted retroactive ratification was valid,

the statute of limitations had already expired on Plaintiff’s claims.

2. The district court properly dismissed Plaintiff’s claim for conversion.

2 Luckey’s alleged possession of the first prototype was not “wrongful”

because Seidl voluntarily dispossessed himself of it by returning it to

Luckey and never requested its return. See Tyrone Pac. Int’l, Inc. v. MV

Eurychili, 658 F.2d 664, 666 (9th Cir. 1981), citing Hartford Fin. Corp. v.

Burns, 96 Cal.App.3d 591, 598 (1979).

3. The district court properly dismissed Plaintiff’s claim for breach of the

implied covenant of good faith and fair dealing because the claim was

based solely on the failure to perform express contractual duties. Careau &

Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990). We

reject Plaintiff’s attempt to distinguish Careau on the basis that Luckey

deliberately breached the contract. First, the plaintiff in Careau also alleged

a deliberate breach. See id. at 1392 (explaining that plaintiff alleged

defendants gave a “deceitful and pretextual explanation for such refusal [to

perform the contract]”). Second, Careau held that “absent those limited

cases where a breach of a consensual contract term is not claimed or

alleged, the only justification for asserting a separate cause of action for

breach of the implied covenant is to obtain a tort recovery.” Id. at 1395.

Restated in the affirmative, when plaintiff is alleging breach of an express

contractual term, as here, the only cognizable implied-duty claim is in tort.

Recovery in tort requires the presence of a “special relationship,” such as

3 that “between insurer and insured,” something the parties here, like those in

Careau, do not have. Id. at 1400-01.

AFFIRMED in part; REVERSED and REMANDED in part.

Each party shall bear its own costs on appeal.