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SONISTA, INC. v. HSIEH

November 21, 2005.

SONISTA, INC., Plaintiff,
v.
DAVID HSIEH, TECHPAC, INC., and PIXA, INC., Defendants.



The opinion of the court was delivered by: RONALD WHYTE, District Judge

ORDER GRANTING IN PART AND DENYING IN PART CROSS-MOTIONS FOR SUMMARY JUDGMENT
Plaintiff Sonista, Inc., and defendant Pixa, Inc., each move for summary judgment. The motions relate to Sonista's trademark infringement claims against all defendants and its breach of fiduciary duty claims against defendant David Hsieh. For the reasons below, the court grants Sonista's motion in part and otherwise denies the motions.

I. BACKGROUND

  The following facts are uncontroverted. In 2003, David Hsieh was a director, shareholder, and officer of plaintiff Sonista, Inc. During this time, he began setting up a company that eventually became defendant Pixa, Inc. Hsieh negotiated the sale of the mark DVONE from Sonista to defendant Techpac, Inc. Techpac was then (and still is) wholly owned by Mei-Hui Lee, who is Hsieh's wife. Techpac licensed the DVONE mark to Pixa. Hsieh resigned as an officer of Sonista in March 2004. In September 2004, Sonista filed suit against Hsieh, Techpac, and Pixa to recover the DVONE mark and damages for trademark infringement and breach of fiduciary duty.

  Currently before the court are cross-motions for summary judgment. Sonista moves for summary judgment on its breach of fiduciary duty claim against Hsieh and its infringement claims against the defendants. Sonista also seeks summary adjudication that Hsieh's breach of fiduciary duty and the defendants' infringement were all willful. Pixa moves for summary adjudication that it is protected from infringement as a bona fide purchaser. Obviously, these motions cannot be all granted in their entireties.

  II. ANALYSIS

  A. Summary judgment

  Summary judgment is proper when the pleadings, discovery, and affidavits 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." FRCivP 56(c). Material facts are those which may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the non-moving party. Id. A party moving for summary judgment who does not have the ultimate burden of persuasion at trial has the initial burden of producing evidence negating an essential element of the non-moving party's claims or showing that the non-moving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000).

  B. Breach of fiduciary duty

  To prove a claim for breach of fiduciary duty, a party must show "(1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach." Stanley v. Richmond, 35 Cal. App. 4th 1070, 1086 (1995). Sonista is a corporation created under the laws of California. California law requires a director to generally perform his corporate duties "in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances." Cal. Corp. Code § 309(a). A director who adheres to this standard "shall have no liability based upon any alleged failure to discharge the person's obligations as a director," id. § 309(c); this is California's codification of the business judgment rule.

  A different standard applies to transactions in which a director has an interest other than his corporation's interest. A transaction "in which one or more . . . directors [have] a material financial interest" can be ratified by the corporation in one of three ways: (1) The interested director discloses all material facts to the shareholders, and the disinterested shareholders approve the transaction; (2) the interested director discloses all material facts to the board or appropriate committee of the board, and the disinterested members of the board or appropriate committee approve the transaction and the transaction "is just and reasonable as to the corporation at the time it is authorized;" or (3) "the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved or ratified." Id. § 310(a).

  1. Transfer of the DVONE mark

  It is not disputed that Hsieh was a director at the time of the DVONE mark transfer. Hsieh, as a director of Sonista, had a duty of "good faith" and had to act "in the best interests of the corporation and its shareholders." Id. § 309(a). The first element of a claim for breach of fiduciary duty, the existence of a duty, has been proven by uncontradicted evidence.

  Lee is the sole shareholder of Techpac, which was incorporated during Lee and Hsieh's marriage. Under California community property law, the stock, which was acquired during marriage, is presumptively community property. See In re Marriage of Haines, 33 Cal. App. 4th 277, 291 (1995); Cal. Fam. Code § 760. Hsieh therefore owns half of the Techpac stock, and has a substantial interest in Techpac. See Cal. Fam. Code § 751 ("The respective interests of the husband and wife in community property during continuance of the marriage relation are present, existing, and equal interests."); d'Elia v. d'Elia, 58 Cal. App. 4th 415, 423 ("When stock is community property, each spouse has an equal interest in it, regardless of who is the holder of record."). The transfer of the DVONE mark from Sonista to to Techpac was a transaction in which Hsieh had a "material financial interest." The business judgment rule of § 309 thus cannot protect Hsieh;*fn1 the transaction is instead scrutinized using § 310.

  There is no evidence that Hsieh's transfer of the DVONE mark was ratified by either disinterested directors or shareholders; there are declarations that the transfer was unauthorized. See 2d Hallam Decl. in Supp. of Prelim. Inj. ¶¶ 2-3 (stating that Hsieh was never authorized to sell Sonista's intellectual property assets and Sonista's board of directors never approved the sale of the DVONE mark); Liou Decl. in Supp. of Prelim. Inj. ¶¶ 5-6 (same). Hsieh's declaration does not create an issue of material fact regarding § 310(a)(1) or (2). Hsieh stated that his "superiors at Eastech were demanding that [he] begin selling Sonista assets" in 2003. Hsieh Decl. in Opp'n to Mot. for Prelim. Inj. ¶ 4. If this is true and the directive covered the DVONE mark, he could have disposed of the DVONE mark in a sale to any entity in which he lacked a material interest, and this court would have analyzed the ...


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