The opinion of the court was delivered by: Hon. Michael M. Anello United States District Judge
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR BOND [Doc. No. 81]
Currently before the Court is Defendants' motion for a bond pursuant to California Code of Civil Procedure section 1030. [Doc. No. 81.] Plaintiffs filed an opposition to the motion on August 2, 2010*fn1 [Doc. No. 90], and Defendants submitted their reply brief on August 23 [Doc. No. 105]. On September 7, the Court heard oral argument. For the reasons set forth below, the Court affirms its tentative decision to GRANT IN PART and DENY IN PART Defendants' motion for a bond.
This action arises out of events related to technology licenses and related joint ventures between Plaintiffs and their predecessor in interest, and Defendants, commencing in 1998. Plaintiff Gabriel Technologies Corporation ("Gabriel") is a publicly-traded corporation focused on technologies related to asset tracking and physical security. [Doc. No. 53, Fourth Am. Compl. ("FAC"), ¶12.] Gabriel is organized pursuant to the laws of Delaware, with its principal place of business in Omaha, Nebraska. [Id. at ¶5.] Gabriel and Loc8.net a/k/a Locate Networks, Inc. ("Locate"),*fn2 a predecessor-in-interest to Gabriel, created Trace Technologies as a joint venture. [Id. at ¶¶2, 14.] Trace is a wholly-owned subsidiary of Gabriel, and is a limited liability company organized under the laws of Nevada. [Id. at ¶6.]
In late 1998, the founders of Locate, Richard Crowson and William Clise, started discussing joint development projects with Defendants Norman Krasner and SnapTrack. [Id. at ¶15.] Locate focused on location determining devices and location-based services; SnapTrack developed broadband network and assisted Global Positioning System ("aGPS") technology. [Id. at ¶¶12, 19.] On August 20, 1999, SnapTrack and Locate entered into a license agreement ("1999 Agreement"). [Id. at ¶23.] The 1999 Agreement set forth the terms under which Locate obtained from SnapTrack a license to use SnapTrack's aGPS software in exchange for paying SnapTrack licensing and royalty fees. [Id. at ¶25.] The parties also agreed to jointly own "Program Technology," defined as work product carried out by the parties in connection with the 1999 Agreement, and identified as Program Technology in the agreement. [Id. at ¶¶23, 28.] Plaintiffs allege that SnapTrack and Krasner used the relationship created by the 1999 Agreement to obtain millions of dollars from Locate to keep SnapTrack afloat while negotiating a billion dollar buyout of SnapTrack. [Id. at ¶2.]
In March 2000, Qualcomm acquired SnapTrack for $1 billion, stating in its press release that "SnapTrack's patents are necessary for the commercial viability of any Wireless Assisted GPS System." [Id. at ¶46.] Qualcomm is a Delaware corporation, with its principal place of business in California. [Id. ¶7.]
In 2004, Locate sold its assets to Trace, transferred its interest in Trace to Gabriel, and went out of business. [Id. at ¶14.] Defendants then presented Trace, the successor in interest to Locate's assets, with a proposed amended license agreement. [Id. at ¶110.] Defendants claimed that no joint Program Technology existed under the 1999 Agreement. [Id. at ¶11.] As such, the proposed amended license agreement deleted the relevant section of the 1999 Agreement which stated that "[a]ll Program Technology was jointly owned by the parties." [Id. at ¶112.] On January 16, 2006, Trace and Defendants entered into the amended license agreement ("2006 Agreement" or "Amended and Restated License Agreement"). [Id. at ¶123.] Plaintiffs state that at the time, Trace was not aware SnapTrack had misappropriated Locate's intellectual property and technology. [Id.] Plaintiffs further assert that Krasner secretly filed and obtained numerous patents based on Locate's technology, which he was able to access when the parties entered into the 1999 Agreement. [Id. at ¶111.] Once Qualcomm acquired SnapTrack, Plaintiffs assert that Qualcomm continued filing patents based on Locate's technology. [Id. at ¶¶111, 120.] Plaintiffs allege that at least 92 U.S. and foreign patents and patent applications filed by Krasner and Qualcomm should list Locate employees as the sole inventors, or at least joint inventors. [Id. at ¶62.]
Over time, as the patents became publicly available, Plaintiffs discovered certain patents that incorporate Locate's pre-existing technology and jointly owned Program Technology. [Id. at ¶126.] Plaintiffs approached Qualcomm with these claims in June 2007, and were ignored by Qualcomm's Board of Directors. [Id. at ¶128.] Upon continuing investigation, Plaintiffs filed this lawsuit, seeking over $1 billion in damages. [Id. at ¶159.]
In the Fourth Amended Complaint, Plaintiffs assert claims for: (1) Breach of the Amended and Restated License Agreement; (2) Correction of Inventorship (pursuant to 35 U.S.C. § 256); (3) Declaratory Judgment of Ownership Interest in the Patents (pursuant to 28 U.S.C. § 2201); and (4) Misappropriation (pursuant to Cal. Uniform Trade Secrets Act). On August 13, 2010, the Court denied Plaintiffs' motion for leave to file a fifth amended complaint, which sought to add a fraudulent concealment claim. [Doc. No. 104.]
On July 2, 2010, Defendants filed the pending motion for a cost bond under California Code of Civil Procedure section 1030. [Doc. No. 81.] The Court also has authority under Civil Local Rule 65.1.2(a) to require Plaintiffs to post a bond "where authorized by law and for good cause shown."
The Federal Rules of Civil Procedure do not contain a provision governing cost bonds or other means for securing costs. See generally Fed. R. Civ. Proc.; see also Simulnet East Assocs. v. Ramada Hotel Operating Co., 37 F.3d 573, 574 (9th Cir. 1994). "However, the federal district courts have inherent power to require plaintiffs to post security for costs. . . . Typically federal courts, either by rule or by case-to-case determination, follow the forum state's practice with regard to security for costs, as they did prior to the federal rules; this is especially common when a non-resident party is involved." Simulnet, 37 F.3d at 574 (9th Cir. 1994); see also Plata v. Darbun Enterprises, Inc., 2009 U.S. Dist. LEXIS 89608 *33-37 (S.D. Cal.) ("federal courts have inherent authority to require plaintiffs to post security for costs"). Here, the forum state's statute regarding imposition of a cost bond is California Code of Civil Procedure section 1030. Under section 1030, a defendant may move the court to issue a cost bond against a plaintiff who resides outside of California, or, is a foreign corporation. The defendant must also demonstrate that there is "a reasonable possibility . . . [it] will obtain judgment in the action . . ." Cal. Civ. Proc. Code § 1030. California state courts describe the purpose of section 1030 as a way to assist California defendants to "secure costs in light of the difficulty of enforcing a judgment for costs against a person who is not within the court's jurisdiction." Shannon v. Sims Serv. Center, 164 Cal. App. 3d 907, 913 (1985).
To determine whether imposition of a cost bond is appropriate under section 1030, courts in the Ninth Circuit consider the following factors: "(i) the degree of probability/improbability of success on the merits, and the background and purpose of the suit; (ii) the reasonable extent of the security to be posted, if any, viewed from the defendant'sperspective; and (iii) the reasonable extent of the security to be posted, if any, viewed from the nondomiciliary plaintiff's perspective. Simulnet, 37 F.3d at 576 (citations omitted). Courts may also consider the absence of attachable property within the district, the conduct of the parties, and the plaintiff's ability to post the bond. Id. "While it is neither unjust nor unreasonable to expect a suitor 'to put his money where his mouth is,' toll-booths cannot be placed across the courthouse doors in a haphazard fashion." Id. (internal citation omitted).
Defendants assert a bond is warranted under section 1030 because they have a "reasonable possibility" of defeating each of Plaintiffs' causes of action, and, they are concerned that Plaintiffs will be insolvent by the time judgment is entered, prohibiting Defendants from recouping the fees and costs to which they will be entitled. Defendants describe Gabriel and its wholly-owned subsidiary Trace as "shell companies with no business, no products, and no revenue." [Doc. No. 81 at p.1.] Plaintiffs admit they are no longer operating. [Doc. No. 93, p.21.] Defendants also offer evidence that Plaintiffs have, to this point, financed this litigation by soliciting nearly six million dollars from investors, which is now gone. [See Doc. No. 81, p.3 (internal citations omitted).] Defendants further point out they have successfully defeated seven of Plaintiffs' claims on motions to dismiss, and argue that Plaintiffs have yet to produce any facts during discovery to support their remaining causes of action. [Id. at p.1.] Accordingly, Defendants seek a cost bond under section 1030 so that they are not forced to spend millions of dollars defending against Plaintiffs' meritless allegations, only to succeed against an insolvent company.
Plaintiffs oppose Defendants' motion on the ground that Gabriel is no longer an out-of-state plaintiff, as it recently relocated its principal place of business to Northern California. [Doc. No. 93, p.8.] In addition, Plaintiffs argue each of their claims is meritorious. [Id. at p.9-10.]
I. PLAINTIFFS'RESIDENCY OR STATUS AS A FOREIGN CORPORATION
The first requirement under California Code of Civil Procedure section 1030 is that the plaintiff resides out-of-state, or, is a foreign corporation. Cal. Civ. Proc. Code § 1030(a). In the FAC, Plaintiff Gabriel alleges it is a Delaware corporation, with its principal place of business in Omaha, Nebraska. [FAC, ¶5.] Gabriel's formation and residency outside of California satisfies the first requirement of section 1030.
Plaintiffs assert, however, that Gabriel recently relocated its primary place of business to northern California on July 16, 2010, which takes Gabriel outside the reach of section 1030. [Doc. No. 93, p.8.] Defendants argue Plaintiffs' purported relocation is a farce, as it did not take place until after Defendants filed their motion for bond. In response, Plaintiffs admit they moved Gabriel's office while Defendants' motion was pending, but that Gabriel's board of directors authorized the move in May 2010. [Id.] Plaintiffs provide minutes from that board of directors meeting, during which Gabriel's board purportedly authorized the company to relocate its primary place of business from Omaha, Nebraska to San Francisco, California. [Id.; Doc. No. 90-6, Affidavit of George Tingo, ¶7; Exhibit 2 (Minutes).] The applicable portion of the minutes states, "the next order of business was the authorization of the hiring of a contract administrative assistant and leasing of an office space in San Francisco, California at the cost of no more than $2,500 per month each for the administrative assistant and the office." [Tingo Affidavit, Exhibit 2 at p.2.] The minutes make no reference to relocating Gabriel's primary place of business.
In addition, Defendants correctly note that the lease agreement Plaintiffs provide as evidence of the relocation is for a residential property. [Tingo Affidavit, Exhibit 1.] Indeed, the express terms of the "Residential Tenancy Agreement" state that, "[t]he Premises shall be used as a permanent, full-time dwelling for residential purposes only and for no other reason. No retail or commercial or professional use of the Premises shall be made unless such use conforms to applicable zoning laws and the prior written consent of Owner is obtained in advance of such proposed use." [Id. at ¶11.] At the hearing, Plaintiffs admitted they leased a residential unit to house Gabriel's headquarters, but insisted they had obtained consent from the Owner to utilize the space for commercial purposes. [Rough Transcript, p.41] Plaintiffs, however, did not provide ...