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SUNDANCE IMAGE TECHNOLOGY, INC. v. INKJETMALL.COM

October 3, 2005.

SUNDANCE IMAGE TECHNOLOGY, INC. and R9 CORPORATION, Plaintiff,
v.
INKJETMALL.COM, LTD., JONATHAN CONE, and DOES 1-10, Defendants. INKJETMALL.COM, LTD., Counterclaimant, v. GARY ROGERS, d/b/a "SUNDANCE IMAGE TECHNOLOGY, INC." and "R9 CORPORATION," and DOES 1-100, Counterdefendants.



The opinion of the court was delivered by: RUDI BREWSTER, Senior District Judge

ORDER: GRANTING SUMMARY ADJUDICATION OF NO PERSONAL (ALTER EGO) LIABILITY [259-1, 259-2] AND GRANTING SUMMARY ADJUDICATION OF NO PROMISSORY FRAUD [266-1]
I. INTRODUCTION
Following a convoluted procedural history, Plaintiffs Sundance Image Technology, Inc. and R9 Corporation (collectively referred to as "Sundance") are bringing claims for unfair trade practices, copyright infringement, and promissory fraud against Defendants Inkjetmall.com ("IJM") and Jonathan Cone and a claim of alter ego liability against Defendant Jonathan Cone. The Court granted Defendants IJM and Jonathan Cone's Motion for Summary Adjudication of No Copyright Infringement in a prior order. Defendant Jonathan Cone now brings a Motion for Summary Adjudication of No Personal (Alter Ego) Liability. Defendants IJM and Jonathan Cone also bring a Motion for Summary Adjudication of no promissory fraud.

II. FACTUAL BACKGROUND

  Plaintiff R9 entered into a software license agreement with Cone Editions Press (CEP) for the sale and distribution of certain software in which R9 holds a copyright. Cone Editions Press copied the software onto computer discs and transferred the discs to IJM, a web-based retailer for CEP. IJM, in turn, sold the discs to the public. IJM is a close corporation that is incorporated in Vermont. Mr. Cone is the President of IJM, and he and his wife Kathy Cone are the sole shareholders of the company. Following a falling out by the parties, R9 terminated the software license. This termination was effective as of September 2002.

  A few months after the software license agreement was executed, Sundance entered into another agreement with CEP for the exclusive sale to CEP of Magma Inks, which are designed for performance with the R9 software. The Magma inks were incorporated into continuous ink systems for use in printing digital photos in black and white using inkjet printers. Pursuant to its agreement, Sundance sold ink to CEP but shipped the ink to IJM. IJM, in turn, sold the ink systems to the public. IJM paid Sundance for some of CEP's outstanding invoices for the ink products. At the time the business relationship between Sundance and CEP went sour, there was $28,405.20 in outstanding invoices for ink merchandise. Sundance never entered into a contract with IJM for ink products. III. PROCEDURAL HISTORY

  R9 brought suit against CEP and IJM, but CEP entered bankruptcy and has been severed from this case by stipulation. Thus, the only remaining Defendants are IJM and its President Jonathan Cone. Plaintiffs Sundance are bringing claims for unfair trade practices, copyright infringement, and promissory fraud against Defendants IJM and Jonathan Cone. Plaintiffs Sundance are also claiming that IJM is a sham entity and the alter ego of Mr. Cone.

  On March 10, 2005, Defendants filed a motion for summary judgment of no copyright infringement and requested attorney's fees. Because the only copyright asserted in the case is held by R9, the Court dismissed Sundance's copyright claim in a prior order. R9 requested that the Court stay ruling on this motion until it had been able to conduct further discovery. The Court granted R9's request and gave both parties additional time to file evidence supporting or rebutting R9's copyright claim. Discovery has now closed, and the Court has received additional filings by both R9 and Inkjetmall.

  On August 23, 2005, the Court issued a partial order granting Defendants' Motion for summary judgment of no copyright infringement and setting oral arguments on the issue of attorney's fees for September 12, 2005. After oral arguments, the Court granted prevailing Defendants' Motion for Attorneys fees on September 26, 2005.

  On August 8, 2005, Defendant Jonathan Cone filed the instant motion for summary judgment or partial summary judgment of no personal (alter ego) liability on the grounds that Plaintiffs have not provided evidence that warrants piercing the corporate veil of IJM to find him personally liable. Also on August 8, 2005, Defendants Jonathan Cone and IJM filed the instant motion for partial summary judgment of no promissory fraud on the grounds that Plaintiffs have not produced evidence that Defendants did not intend to pay for the Sundance ink products at the time the ink products were ordered. Both motions were heard on September 12, 2005. IV. Summary Judgment and Summary Adjudication

  Summary judgment is appropriate when the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." See Fed.R.Civ.P. 56 (c) (2005); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is "material" when, under the governing substantive law, it could affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A dispute about a material fact is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248.

  A party seeking summary judgment always bears the initial burden of establishing the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323. The moving party can satisfy this burden in two ways: (1) by presenting evidence that negates an essential element of the nonmoving party's case or (2) by demonstrating that the nonmoving party failed to make a showing sufficient to establish an element essential to that party's case on which that party will bear the burden of proof at trial. See id. at 322-23. Here, Defendant Cone argues that Plaintiffs Sundance have failed to make a sufficient showing that IJM is his alter ego, and both Defendants argue that Plaintiffs have failed to make a sufficient showing that Defendants made a promise to Plaintiffs with no intention of keeping the promise at the time the promise was made.

  Once the moving party meets this initial burden, the nonmoving party cannot defeat summary judgment by merely demonstrating "that there is some metaphysical doubt as to the material facts." See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir. 1995) (citing Anderson, 477 U.S. at 252) ("The mere existence of a scintilla of evidence in support of the non-moving party's position is not sufficient."). Rather, the nonmoving party must "go beyond the pleadings and by her own affidavits, or by `the depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" See Celote, 477 U.S. at 324 (quoting Fed.R.Civ.P. 56(e)).

  However, all inferences drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co., 475 U.S. at 587. "Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge, [when] he [or she] is ruling on a motion for summary judgment." See Anderson, 477 U.S. at 255. The Court must determine whether evidence has been presented that would enable a reasonable jury to find for the nonmoving party. Liberty Lobby, Inc., 477 U.S. at 249-252.

  If the Court is unable to render summary judgment upon an entire case and finds that a trial is necessary, it shall, if practicable, grant summary adjudication for any issues as to which, standing alone, summary judgment would be appropriate. See Fed.R.Civ.P. 56(d) (2005); see also California v. Campbell, 138 F.3d 772, 780 (9th Cir. 1998), cert. denied (Oct. 5, 1998). Thus, partial summary judgment is a mechanism through which the Court deems certain issues established before trial. Lies v. Farrell Lines, Inc., 641 F.2d 765, 769 n. 3 (9th Cir. 1981) (quoting 6 Moore's Federal Practice ¶ 56.20 (3.-2) (2d ed. 1976)).

  A. Inkjetmall as an Alter Ego of Jonathan Cone

  Plaintiffs Sundance assert claims against Jonathan Cone, President of IJM, by asking the Court to pierce the corporate veil of IJM under an alter ego theory of liability. Under the equitable doctrine known as "piercing the corporate veil," a separate corporate entity may be disregarded and "a corporation and the individual or individuals owning all its stocks and assets will be treated as identical." 18 Am. Jur. 2d Corporations § 43 (2004). Thus, piercing the corporate veil allows a court to hold a corporation's shareholders and their personal assets liable for the debts of the corporation.

  In order for piercing to occur, an alter ego relationship must exist such that the corporation's liabilities may be imposed on an individual. California law only recognizes an alter ego relationship when (1) "there is such a unity of interest and ownership that the individuality, or separateness, of the said person and corporation has ceased," and (2) "an adherence to the fiction of the separate existence of the corporation would . . . sanction a fraud or promote injustice." Firstmark Capital Corp. v. Hempel Financial Corp., 859 F.2d 92, 94 (9th Cir. 1988). Under Vermont law, courts are reluctant to pierce corporate veils and do so only when it is necessary to prevent fraud or injustice. See In re Vermont Toy Works, 135 B.R. 762, 770 (D. Vt. 1991). Vermont courts engage in veil piercing for factors such as "using the corporation to perpetrate a fraud; the personal use of corporate funds; the failure to observe ...


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