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Upper Deck International B.V., A Netherlands Corporation v. the Upper Deck Company

May 11, 2012


The opinion of the court was delivered by: Honorable Larry Alan Burns United States District Judge


Upper Deck International filed this lawsuit on August 4, 2011. It named three Defendants: (1) Upper Deck California; (2) Upper Deck Nevada; and (3) Richard McWilliam. These Defendants answered separately on September 29, 2011, and Upper Deck Nevada filed a counterclaim. This counterclaim named not only Upper Deck International as a defendant, but also an individual by the name of Nico Blauw. Amendments followed.

First, Upper Deck Nevada filed an amended counterclaim on December 12, 2011 that Richard McWilliam joined-and that also named two new defendants: Blue Ocean Entertainment and Larissa Blauw.

Second, Upper Deck International filed an amended complaint on January 3, 2012. There are now three motions pending before the Court. The first is Upper Deck International's motion to dismiss the counterclaims filed by Upper Deck Nevada and McWilliam. The second is Nico Blauw's motion to dismiss or strike the counterclaims. The third is a joint motion, by both Upper Deck International and Nico Blauw, to strike a defamation counterclaim under California's anti-SLAPP statute.


I. Upper Deck International's Complaint

UDI's grievances against UDC*fn1 stem from two seemingly unrelated series of events. The first series involves a web of distributor agreements that both parties separately entered into with Konami Digital Entertainment, and both of which slid into litigation. Here, UDI's core grievance is that its business relationship with KDE soured on account of UDC's conduct. The second series of events involves alleged counterfeiting on UDC's part that, according to UDI, has damaged its own reputation and business prospects.

A. The Konami Affair

Konami Digital Entertainment, or KDE, manufactures a trading card game called YuGi-Oh!. Around September 2006, KDE entered into distributor agreements with UDI and UDC. UDI became the exclusive distributor of Yu-Gi-Oh! in Europe, and UDC became the exclusive distributor of Yu-Gi-Oh! in North America, South America, and Oceania. (Actually, UDI's agreement was a sub-distributor agreement with Upper Deck Panoceanic, which seems not to be that important of a fact.) For convenience, we can refer to UDI's agreement as the Europe Contract and UDC's agreement as the America Contract. (See FAC ¶¶ 9--12.)

The Europe Contract contained a so-called "Domino Clause" that allowed KDE to terminate it immediately if the America Contract was rightfully terminated. In other words, UDI's relationship with KDE turned to some degree on UDC's relationship with KDE. If UDC violated the terms of its distributor agreement, UDI's distributor agreement would be in jeopardy. And that, according to UDI, is what happened. In 2008, UDC began producing and distributing counterfeit Yu-Gi-Oh! cards. KDE promptly terminated the America Contract, sued UDC in the Central District of California, and invoked the Domino Clause to threaten UDI with termination of its Europe Contract. (See FAC ¶¶ 13--17.)

McWilliam, a member of UDC's board of directors, assured UDI's Chief Executive Officer Nico Blauw that UDC had done nothing wrong. Relying on that, UDI took legal action in Europe against KDE to forestall KDE's invocation of the Domino Clause and to save the Europe Contract. UDI succeeded, and the two companies continued to do business. Things took a turn for the worse, however, in April 2009. Around that time, McWilliam admitted to both UDI and KDE that UDC had, in fact, counterfeited Yu-Gi-Oh! cards. KDE then effectively re-invoked the Domino Clause to terminate its distributor agreement with UDI; it refused to fulfill Yu-Gi-Oh! orders placed by UDI, and it also refused to refund money advanced by UDI to pay for those orders. (See FAC ¶¶ 18--20.)

Meanwhile, KDE and UDC were still involved in litigation in the Central District of California, but were making efforts to settle. According to UDI, UDC needed money to settle, and in January 2010 UDI agreed to loan UDC $1 million, to be repaid by April 2010. UDI made this loan on the assumption that if KDE settled with UDC in the Central District of California, the settlement would also resolve KDE's dispute with UDI in Europe. It didn't. In fact, UDC represented during settlement negotiations that UDI didn't want to settle its dispute with KDE jointly with UDC (and it represented to UDI that KDE wasn't interested in a global settlement, either), and as a result KDE continued to pursue legal action against UDI in Europe. (See FAC ¶¶ 21--24.)

In the end, KDE sought $64 million in damages from UDI, and UDI, as a result of its contentious relationship with KDE, lost millions of dollars in revenue from the sale of Yu-GiOh! cards. Its business reputation was also tarnished, costing it relationships with existing suppliers and prospective relationships with new suppliers. UDI attributes all of this to its association with UDC and UDC's own counterfeiting scheme. Finally, UDC hasn't repaid UDI any of the $1 million that it borrowed-and $70,000 in interest has accrued. (See FAC ¶¶ 25--26.)

B. Counterfeiting

On top of UDC's alleged counterfeiting of Uh-Gi-Oh! cards, UDI alleges that UDC has also been counterfeiting "game-worn" jerseys, shreds of which are included in packs of trading cards. Word of this has circulated throughout the industry, and even though UDI isn't involved in the counterfeiting, its own reputation and business relationships are suffering. So, here, again, UDI's core grievance is that UDC's conduct, over which it has no control, is adversely affecting its own business interests. (See FAC ¶¶ 27--41.)

C. UDI's Claims

UDI asserts six claims against UDC. The first claim is for breach of contract: UDC borrowed $1 million from UDI and hasn't repaid it. The second claim is for intentional interference with contractual relations: UDC knew of UDI's Europe Contract and knew that its own counterfeiting of Yu-Gi-Oh! cards would adversely affect UDI's own relationship with KDE. The third claim, based on roughly the same facts as the second claim, is for intentional interference with prospective economic advantage. The fourth claim, again based on roughly the same facts as the second, is for negligent interference with prospective economic advantage. The fifth claim, against McWilliam, is for breach of fiduciary duty: McWilliam, as a member of UDI's board of directors, breached his fiduciary duties to UDI by counterfeiting Uh-Gi-Oh! trading cards, by counterfeiting game-worn jerseys, and by disregarding and/or misrepresenting UDI's interests in negotiating its own settlement with KDE. The sixth and final claim, against UDC, and based on roughly the same facts as the fifth claim, is for aiding and abetting McWilliam's breach of his fiduciary duties.

II. UDC's Counterclaim

UDC opens its counterclaim with a flat rejection of UDI's account of the facts. The $1 million loan was hardly a loan; rather, UDI owed another member of the Upper Deck family $7.2 million and the $1 million was to be deducted from that amount. (FACC ¶¶ 14--20.) Also, UDC in no way disregarded UDI's own interests in its settlement negotiations with KDE; rather, UDC and KDE offered to incorporate a settlement of UDI's dispute into their own settlement and Nico Blauw, acting for UDI, refused to be a part of their settlement. (FACC ¶¶ 21--28.)

Having made these points, UDC's counterclaim takes the offensive against Nico Blauw, UDI's Chief Executive Officer, accusing him of serial and grave misconduct in his business dealings.

A. Allegations Against Blauw

UDC accuses Blauw, first, of negotiating an overpriced settlement with KDE that was driven largely by his own financial interests. (As part of its lawsuit against UDI, KDE was successful in having Blauw's assets and bank accounts frozen.) (See FACC ¶¶ 29--35.) It then moves on to a general statement of the various fiduciary duties Blauw owed UDI, followed by the general accusation that he breached those duties. (FACC ¶¶ 36--40.) For example, Blauw "made business decisions as director of UDI without an informed basis and lacking good faith" and "routinely made significant business decisions . . . without first seeking approval and consultation of UDI's Board of Directors." (FACC ¶¶ 39--40.)

UDC's counterclaim accusations get more specific under the heading "Mr. Blauw's Mismanagement and Wrongful Withholding of UDI Financial Statements." Here, UDC accuses Blauw of: (1) running an inefficient and wasteful business by, for example, overstaffing UDI (FACC ¶ 42); (2) generating incomprehensible financial statements, or failing to generate them at all (FACC ¶ 43); (3) denying McWilliam's repeated requests to view UDI's financials and business plan (FACC ¶¶45--56); (4) failing to provide UDI's outside accountants with UDI's financials, and delinquently filing those financials with the Dutch Chamber of Commerce (FACC ¶ 47); (5) filing earlier financials belatedly (FACC ¶ 48); and (6) filing UDI's VAT returns in 2010 late, creating problems with foreign tax authorities and exposing shareholders to liability (FACC ¶ 49).

UDC's most serious accusation is that over a two-year period from June 2008 to September 2010, while McWilliam was in and out of treatment for heart trouble and chemical addiction, Blauw wrestled away 52.5 percent of UDI from him for a mere one Euro. Blauw made these maneuvers despite the fact that McWilliam was trusting him to run UDC and UDI from California while McWilliam was incapacitated, and despite his own awareness of just how incapacitated McWilliam was. (See FACC ¶¶ 50--67.)

B. Individual Counterclaims

UDC asserts four counterclaims, and McWilliam ...

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