The opinion of the court was delivered by: RONALD WHYTE, District Judge
ORDER GRANTING IN PART AND DENYING IN PART CROSS-MOTIONS FOR
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.
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.
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 §
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 ...