Total Recall Technologies v. Palmer Luckey

• Court: Court of Appeals for the Ninth Circuit
• Decided: June 15, 2020
• Docket: 19-15544
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUN 15 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT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

2 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).

3 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).

4 691. 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.