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Gurvey v. Legend Films

January 4, 2010

AMY R. GURVEY, PLAINTIFF,
v.
LEGEND FILMS, INC., FORMERLY KNOWN AS LEGEND FILMS, LLC; JEFFREY B. YAPP; DAVID G. MARTIN; AND BARRY B. SANDREW, DEFENDANTS.



The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS [Doc. No. 8]

Currently before the Court is Defendants' Motion to Dismiss the complaint. [Doc. No. 8]. Having considered the parties' arguments, and for the reasons stated herein, the Court GRANTS IN PART and DENIES IN PART Defendants' motion.

BACKGROUND

I. The Parties

Plaintiff, Amy Gurvey, is an attorney licensed to practice in the states of California and New York with experience and training in entertainment and intellectual property law. She was a resident of New York until 2002, at which time she moved her residence to New Jersey. Gurvey performed legal services for Defendant Legend Films, Inc. as well as individual Defendants between 2000 and 2002.

Defendant Legend Films, Inc. ("Legend") is a San Diego-based company specializing in the restoration and colorization of old black-and-white films and television shows for DVD, HDTV, and theatrical release. Legend Films, LLC ("LLC"), the predecessor to Legend, was formed in 2001 by Defendants Yapp and Sandrew,*fn1 and was incorporated in Nevada. In 2003, Legend was incorporated in California, and the LCC ceased to exist.

Defendant Barry Sandrew, Ph.D., is a California resident, and is currently serving as President and Chief Operating Officer of Legend. Sandrew is the inventor of an all-digital process for colorizing black and white films.

Defendant Jeffrey Yapp is currently a California resident and serves as Chairman of Legend's Board of Directors. In 2001, when the LLC was formed, Yapp was a resident of Oregon. Subsequently, in 2001, Yapp began working for Cablevision Systems Corporation ("Cablevision") in New York. In late 2002, Yapp moved from Oregon to New York, where he remained until early 2006.*fn2

Defendant David Martin, a California resident, is Legend's Chief Executive Officer and a member of the company's Board of Directors.

II. Factual Background

In late 1999, Plaintiff began performing legal services for Defendants Sandrew and Yapp in connection with breach of fiduciary duty claims against certain board members of the American Film Technologies, Inc. ("AFT"). At that time, both Sandrew and Yapp were AFT board members.

Sandrew and Yapp resigned from AFT on November 7, 2000. At that time, Plaintiff was working on various projects for Sandrew, including review of patents, contracts, and employment agreements pertaining to Sandrew and potential outsourcing companies. Plaintiff continued providing legal services to Yapp and Sandrew, and allegedly at their request also began providing legal services to Legend. Plaintiff's "General Counsel" services included aid in: formation of the company, drafting and reviewing contracts, proposals to film studios, intellectual property issues, and capital-raising activities. At all relevant times, Legend allegedly held Plaintiff out to the public (e.g., in its prospectus, business plan, and executive summary) as its General Counsel and part of its management team.

On November 15, 2001, Plaintiff allegedly entered into an Employment Agreement (the "Agreement") with the LLC to serve as the company's General Counsel. The Agreement was for an initial term of two years commencing January 1, 2002, with an annual base salary of $125,000 plus other renumeration and benefits, including an ownership stake in Legend. The Agreement also contained a provision that Plaintiff could only be terminated upon ninety days prior written notice with a reasonable opportunity to cure any alleged failure to perform. Additionally, upon termination Plaintiff would be entitled to salary, accrued time off, earned bonuses, stock options, and deferred compensation. Any termination without cause would obligate Legend to pay Plaintiff $100,000 as severance. Finally, the Agreement allegedly contained a "Choice of Law/Forum" clause providing:

This Agreement is to be construed and enforced in accordance with the laws of the State of New York, irrespective of the principles of conflicts of law. Any action brought pursuant to this Agreement must be instituted in the federal or state courts of the State of New York. (Employment Agreement attached to Sandrew Decl., Ex. A, ¶ 10 (June 25, 2009).)

Although Plaintiff's complaint appears to assert that the alleged Agreement was signed by both parties, that does not seem to be the case. Defendants have included a copy of the "proposed" version of the Agreement with their Motion to Dismiss, which they allege has been supplied by Gurvey and was never signed by Legend or any of its employees. In her opposition to Defendants' motion to dismiss, Gurvey concedes that the Agreement was never signed. However, she continues to maintain that a valid "contract" existed between the parties.*fn3

In February of 2002, shortly after entering into the Agreement, Plaintiff joined the law firm of Cowan, Liebowitz, & Latlaw, P.C. ("Cowan") in an "of counsel" capacity. Under her employment contract with Cowan, however, Plaintiff was permitted to continue working as general counsel to Legend, and Cowan held no rights to her 3% stock interest in Legend.

Gurvey claims that she continued to perform legal services for Legend through October of 2002. In November of 2002, Mr. Yapp allegedly informed her by phone she was to be terminated without cause. Since then, Yapp has allegedly admitted that the company terminated Plaintiff because it lacked funds to pay her. In September of 2008, however, it was reported that Legend had successfully raised $13 million in venture capital funding.

Plaintiff now claims she still has not been paid the $125,000 salary, stock interest, and $100,000 severance owed to her under the Agreement, as well as for services rendered to individual Defendants prior to the formation of the LLC. Mr. Yapp allegedly made repeated representations to Plaintiff that she would be paid under the Agreement that never came to fruition. Moreover, in 2005, in order to dissuade Plaintiff from filing suit for breach of contract, Defendants allegedly offered Plaintiff 40,000 shares of Legend stock but did not provide Plaintiff's requested due diligence documentation, so she was never able to ascertain the value of the offered shares.

III. Procedural Background

Plaintiff brought the instant action in the United States District Court for the Southern District of New York on October 29, 2008. The complaint alleges two separate claims for quantum meruit, as well as claims for breach of contract, promissory estoppel, and specific performance. On December 8, 2008, Defendants moved to dismiss the complaint for lack of personal jurisdiction or, in the alternative, to transfer the case. Before the New York court could rule on the motion, however, the parties stipulated to the transfer of the action to the United States District Court for the Southern District of California. The case was transferred to this Court on May 1, 2009. [Doc. No. 1].

Defendants moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) on June 25, 2009. Plaintiff has filed an opposition and Defendants have filed a reply. Subsequently, the Court ordered supplemental briefing concerning (1) whether New York court could exercise personal jurisdiction over Defendants, and (2) if there was no personal jurisdiction in New York, whether any objection to that was waived by Defendants. [Doc. No. 20]. Following the Court's order, Plaintiff filed a supplemental brief, which was followed by Defendants' opposition, and Plaintiff's reply. Finally, the Court heard oral argument on Defendants' motion on October 26, 2009.

DISCUSSION

Defendants' motion rests primarily on two grounds: (1) that all of Gurvey's claims are barred by the applicable California statutes of limitation, and (2) that individual Defendants cannot be held responsible under a corporate contract.

I. Legal Standard for Motion to Dismiss

This case presents an intertwined issue of statute of limitations and choice of law questions brought at a motion to dismiss stage. Normally, a complaint survives a motion to dismiss under Fed. R. Civ. P. 12(b)(6) if it contains "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S.544, 570 (2007). The court only reviews the contents of the complaint, accepting all factual allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009) (citing Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1043 n.2 (9th Cir. 2008)).

Despite the deference, the court need not accept "legal conclusions" as true. Ashcroft v. Iqbal, --- U.S. ---, 129 S.Ct. 1937, 1949-50 (2009). It is also improper for the court to assume "the [plaintiff] can prove facts that [he or she] has not alleged." Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). On the other hand, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Iqbal, 129 S.Ct. at 1950.

Thus, in the present case, the Court must determine "whether 'the running of the statute [of limitations] is apparent on the face of the complaint.'" Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997 (9th Cir. 2006) (citations omitted). "[A] complaint cannot be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts that would establish the timeliness of the claim." Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1206 (9th Cir. 1995). In analyzing whether plaintiff's claims are time-barred, the court follows the following analytical framework:

"First, the Court must decide what choice-of-law rule governs the selection of the statute of limitations. Second, the Court must apply that rule to determine which jurisdiction's limitations law applies. Third, and finally, the Court [must] determine whether plaintiffs' claims fall within the relevant limitations period."

Huynh, 465 F.3d at 997 (citation omitted).

II. Choice-of-Law

A. Legal Standard

A federal court sitting in diversity jurisdiction typically applies the substantive law of the forum state, including its choice-of-law rules. Ferens v. John Deere Co., 494 U.S. 516, 524-25 (1990); Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); Muldoon v. Tropitone Furniture Co., 1 F.3d 964 (9th Cir. 1993). However, when an action is transferred from one district to another under 28 U.S.C. § 1404(a), the transferee court applies the law of the forum (the "transferor court") in which the action was originally filed.*fn4 Ferens, 494 U.S. at 524-26; Van Dusen v. Barrack, 376 U.S. 612, 637-39 (1964); Muldoon, 1 F.3d at 965-66. Thus, "[a] change of venue under § 1404(a) generally should be, with respect to state law, but a change of courtrooms." Van Dusen, 376 U.S. at 639.

The foregoing analysis assumes, however, that the transfer under Section 1404(a) was proper "[f]or the convenience of parties and witness" and "in the interest of justice." Muldoon, 1 F.3d at 966-67. The Ninth Circuit distinguishes "between cases so transferred and those transferred under §§ 1404(a) or 1406(a) to cure a lack of personal jurisdiction in the transferor district."*fn5 Id. at 967 (citing Nelson v. Intl. Paint Co., 716 F.2d 640, 643 (9th Cir. 1983)). As to the latter, the law of the transferee district, including its choice-of-law rules, is applicable." Id. (citations omitted).

B. Choice-of-Law Provision in the Contract

As a preliminary matter, however, the Court must decide whether the choice of law provision in the alleged Agreement controls the determination of the applicable law. Both California and New York courts would enforce a valid choice-of-law provision, as long as it was entered into freely and voluntarily. See Nedlloyd Lines B.V. v. Sup. Ct., 3 Cal. 4th 459, 464-65 (1992); Welsbach Elec. Corp. v. MasTec North America, Inc., 7 N.Y.3d 624, 629 (2006). Notably, however, a choice-of-law provision will not be enforced where "the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice," or "the application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which... would be the state of the applicable law in the absence of an effective choice of law by the parties." RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187 (1971).

In the present case, Plaintiff appears to have abandoned her reliance on the alleged Agreement as the source of an express choice-of-law provision providing for the application of New York law. (See Pl. Opp. to Def. MTD at 1 n.1.) In her opposition, Plaintiff concedes that "the parties never signed a contract." (Id. at 4.) Rather, according to Plaintiff, "there was a meeting of the minds about the terms of the contract and plaintiff had in fact performed under, and in reliance upon the contract." (Id.) Based on this, Defendants contend that Plaintiff has ...


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