United States District Court, N.D. California, San Jose Division
ORDER GRANTING IN PART AND DENYING IN PART
CROSS-MOTIONS FOR SUMMARY JUDGMENT AND DENYING CROSS-MOTIONS
FOR SANCTIONS Re: Dkt. Nos. 85, 92, 93, 94
H. Koh United States District Judge
and Counterdefendant Luxul Technology, Inc.
("Luxul") moves for summary judgment and for
sanctions against Defendants and Counterclaimants NectarLux
LLC, JKenney Consulting, Inc., and James Keeney
(collectively, "NectarLux"). ECF Nos. 85
("Luxul Sanctions Mot."), 94 ("Luxul Summ. J.
Mot."). NectarLux also moves for summary judgment and
for sanctions against Luxul. ECF Nos. 92 ("NectarLux
Sanctions Mot."), 93 ("NectarLux Summ. J.
Mot."). For the reasons explained below, the Court
GRANTS IN PART and DENIES IN PART Luxul's Motion for
Summary Judgment; DENIES Luxul's Motion for Sanctions;
GRANTS IN PART and DENIES IN PART NectarLux's Motion for
Summary Judgment; and DENIES NectarLux's Motion for
Luxul Technology Inc. is a California corporation with a
principal place of business in Santa Clara, California. Sec.
Am. Compl. ("SAC"), ECF No. 38, ¶ 1. Defendant
NectarLux, LLC is a New York limited liability company with a
principal place of business in Syracuse, New York.
Id. ¶ 2. Luxul is a producer of energy
efficient light emitting diode ("LED") products.
Id. ¶ 9.
Luxul's Allegations against NectarLux
April 6, 2014, Luxul entered into a written "Sales
Representation and Marketing Consulting Agreement"
("April 2014 Agreement") with Defendant NectarLux.
Id. ¶ 13.; see ECF No. 116-2, Ex. 2.
Under the Agreement, NectarLux served as Luxul's
"exclusive, independent representative for the sale of
Luxul products" in certain regions, for certain
customers. SAC ¶ 13. NectarLux and Luxul were
jointly obligated to "work together to ensure that Sales
Commitments" were achieved and to meet regularly. April
2014 Agreement ¶ 1.a.
Agreement also provided for Luxul to disclose certain
confidential information to NectarLux, including information
relating to building science technologies, trade secrets,
product design, manufacturing, pricing, marketing,
distribution, business opportunities and relationships,
industry experts, legal entities, and individuals. SAC ¶
16. Under Section 3 of the Agreement, NectarLux agreed that
Luxul was "the owner of all right, title, and interest
in the Confidential information, including all tangible
copies and . . . electronic versions thereof."
Id. ¶ 17. NectarLux agreed that it would not
disclose confidential information unless necessary to satisfy
its obligations under the Agreement. Id. ¶ 18.
April 2014, James Pan ("Pan"), Luxul's chief
executive officer, and Adam Lilien, NectarLux's Managing
Director of Nectar Energy, met with a potential manufacturer
in New York. Id. ¶ 27. Luxul continued to
negotiate directly with the New York manufacturer.
Id. Luxul alleges that in July 2014, Lilien and
Keeney contacted the same New York manufacturer to discuss
alternative proposals and set up meetings with competing LED
companies. Id. ¶ 28.
August 12, 2014, Luxul terminated the Agreement with
NectarLux. Id. ¶ 30.
NectarLux's Allegations Against Luxul
presents a different version of the allegations summarized
above. NectarLux agrees that parties entered into an
Agreement related to sales of Luxul's LED bulbs through
NectarLux's distribution network. Countercl. ¶ 1.
However, NectarLux alleges that Luxul acquired
NectarLux's propriety information, including
"pricing, marketing and distribution, business
opportunities, business relationships influential in
purchasing decisions, business entities who may be interested
in OEM/resale relationships, as well as other like terms,
" and then Luxul wrongfully terminated the parties'
contracts. Id. ¶ 1. NectarLux alleges that
Luxul "misappropriated NectarLux's information to
employ these confidential strategies and to market and sell
light bulbs in NectarLux's exclusive territorial regions
and to NectarLux's protected clients without compensating
NectarLux for the sales." Id.
NectarLux begins the allegations in its countercomplaint with
reference to an earlier contract, entered into on January 29,
2014 ("January 2014 Agreement"). Id.
¶ 20 & Ex. 1. The counterclaims allege that the January
2014 Agreement was negotiated by Adam Lilien; Shawn Colvin, a
Luxul representative; and Dennis Malone of DM Lighting.
Id. ¶¶ 15, 18, 19 ("Colvin, Malone,
and Lilien discussed and negotiated a potential partnership
between Luxul and NectarLux."). According to the
counterclaims, the January 2014 Agreement "appointed
NectarLux as the exclusive representative for the sale of
Luxul products" for certain clients and certain
geographic areas. Id. ¶ 20. The counterclaims
further allege that "[o]n or about March 18, 2014, Luxul
informed NectarLux the contract was invalid because Colvin
had no authority to execute contracts on behalf of
Luxul." Id. ¶ 22. Thereafter, the parties
entered into the April 2014 Agreement discussed above, but
"Luxul and Pan used duress and wrongfully coerced
NectarLux to materially modify the terms of the contract to
Luxul's and Pan's benefit." Id. ¶
parties now agree that NectarLux was never a party to the
January 2014 Agreement because the January 2014 Agreement was
executed by Adam Lilien on behalf of a different company
named Nectar Partners and its affiliate Nectar Energy.
See January 2014 Agreement; Luxul Summ. J. Mot. at 4
("NectarLux is not named as a party to the January 29,
2014 contract."); ECF No. 106 ("Opp. to Luxul Summ.
J. Mot.") at 1 ("The first contract was executed by
Nectar Partners and Luxul on January 29, 2014"); ECF No.
104 ("Opp. to Luxul Sanctions Mot.") at 3
("The first contract was executed by Nectar
Partners and [Luxul] on January 29, 2014. There is no
dispute the first contract was executed by these
parties."). The parties additionally agree that the
April 2014 Agreement was a binding contract between Luxul and
NectarLux. Compl. ¶ 13 ("On or about April 6, 2014,
Luxul entered into a written ‘Sales Representation and
Marketing Consulting Agreement' (‘the
Agreement') with NectarLux."); Ans. ¶ 13
("Defendants admit the allegations in Paragraph
13"); see also Luxul Sanctions Mot. at 2
("Luxul and NectarLux entered into a written
‘Sales Representation and Marketing Consulting
Agreement' dated April 6, 2014."); Opp. to Luxul
Sanctions Mot. at 4 ("It is beyond dispute that Luxul
and NectarLux agreed to terms and executed the second
alleges that following execution of the April 2014 Agreement,
"NectarLux continued to act in good faith" under
the terms of the April 2014 Agreement. Countercl. ¶ 26.
NectarLux alleges that in August 2014, NectarLux discovered
that Luxul had registered a fraudulent purchase order from
NectarLux and "that Luxul was selling light bulbs
directly and/or through third parties in NectarLux's
territory and to NectarLux's clients without compensating
NectarLux for the sales." Id. ¶ 31. When
NectarLux requested compensation for these sales, "Luxul
refused, terminated the contract, and severed all business
ties with NectarLux." Id.
filed its original Complaint on August 12, 2014. ECF No. 1.
Luxul filed a First Amended Complaint ("FAC")
pursuant to stipulation on October 31, 2014. ECF No. 19.
NectarLux filed a motion to dismiss on November 21, 2014. ECF
No. 21. The Court granted in part and denied in part the
motion to dismiss on January 26, 2015, ECF No. 36, and Luxul
filed a Second Amended Complaint ("SAC") on
February 13, 2015, ECF No. 38. NectarLux filed an Answer to
the Second Amended Complaint, Third Party Complaint against
Pan, and Counterclaims against Luxul on February 27, 2015.
ECF No. 42. NectarLux's Answer alleged four counterclaims
against Luxul and four cross-claims against Pan. Id.
and Pan filed a motion to strike and motion to dismiss on
March 27, 2015. ECF No. 45. Luxul and Pan moved to strike
portions of NectarLux's counterclaims and moved to
dismiss one of NectarLux's counterclaims and all of
NectarLux's cross-claims. Id. The Court denied
the motion to strike and granted the motion to dismiss
NectarLux's third counterclaim and all of NectarLux's
cross-claims. ECF No. 61.
then filed an Answer to NectarLux's counterclaims on
August 20, 2015, ECF No. 62, and an Amended Answer to
NectarLux's counterclaims on September 10, 2015, ECF No.
filed a motion for sanctions on April 11, 2016. ECF No. 85
("Luxul Sanctions Mot."). NectarLux filed an
opposition on April 25, 2016. ECF No. 104 ("Opp. to
Luxul Sanctions Mot."). Luxul filed a reply on May 2,
2016. ECF No. 128 ("Reply to Luxul Sanctions
filed a motion for summary judgment on April 12, 2016. ECF
No. 94 ("Luxul Summ. J. Mot."). NectarLux filed an
opposition on April 26, 2016. ECF No. 106 ("Opp. to
Luxul Summ. J. Mot."). Luxul filed a reply on May 3,
2016. ECF No. 138 ("Reply to Luxul Summ. J. Mot.").
filed a motion for sanctions on April 12, 2016. ECF No. 92
("NectarLux Sanctions Mot."). Luxul filed an
opposition on April 26, 2016. ECF No. 111 ("Opp. to
NectarLux Sanctions Mot."). NectarLux filed a reply on
May 3, 2016. ECF No. 132 ("Reply to NectarLux Sanctions
filed a motion for summary judgment on April 12, 2016. ECF
No. 93 ("NectarLux Summ. J. Mot."). Luxul filed an
opposition on April 26, 2016. ECF No. 112 ("Opp. to
NectarLux Summ. J. Mot."). NectarLux filed a reply on
May 3, 2016. ECF No. 134 ("Reply to NectarLux Summ. J.
April 28, 2016, the Court granted the parties' joint
stipulation for dismissal with prejudice of Luxul's
first, fifth, and sixth causes of action. ECF No. 121.
Luxul's SAC has five remaining causes of action against
NectarLux: (1) Claim Two for violation of California's
Unfair Competition Law ("UCL"), Cal. Bus. & Prof.
Code § 17200 et seq.; (2) Claim Three for
breach of contract; (3) Claim Four for breach of the implied
covenant of good faith and fair dealing; (4) Claim Seven for
copyright infringement in violation of 17 U.S.C. § 101
et seq.; (5) Claim Eight for account stated.
NectarLux's counterclaims have three remaining causes of
action against Luxul: (1) Counterclaim One for breach of
contract; (2) Counterclaim Two for breach of the implied
covenant of good faith and fair dealing; (3) Counterclaim
Four for an accounting.
judgment is appropriate if, viewing the evidence and drawing
all reasonable inferences in the light most favorable to the
nonmoving party, there are no genuine issues of material
fact, and the movant is entitled to judgment as a matter of
law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett,
477 U.S. 317, 321 (1986). At the summary judgment stage, the
Court "does not assess credibility or weigh the
evidence, but simply determines whether there is a genuine
factual issue for trial." House v. Bell, 547
U.S. 518, 559-60 (2006). A fact is "material" if it
"might affect the outcome of the suit under the
governing law, " Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986), and a dispute as to a
material fact is "genuine" if there is sufficient
evidence for a reasonable trier of fact to decide in favor of
the nonmoving party, id. "If the evidence is
merely colorable, or is not significantly probative, summary
judgment may be granted." Id. (citations
moving party bears the initial burden of identifying those
portions of the pleadings, discovery, and affidavits that
demonstrate the absence of a genuine issue of material fact.
Celotex Corp., 477 U.S. at 323. Where the moving
party will have the burden of proof on an issue at trial, it
must affirmatively demonstrate that no reasonable trier of
fact could find other than for the moving party, but on an
issue for which the opposing party will have the burden of
proof at trial, the party moving for summary judgment need
only point out "that there is an absence of evidence to
support the nonmoving party's case." Id. at
325; accord Soremekun v. Thrifty Payless, Inc., 509
F.3d 978, 984 (9th Cir. 2007). Once the moving party meets
its initial burden, the nonmoving party must set forth, by
affidavit or as otherwise provided in Rule 56, "specific
facts showing that there is a genuine issue for trial."
Anderson, 477 U.S. at 250.
Rule 11 Sanctions
11 sanctions are appropriate "when a filing is
frivolous, legally unreasonable, or without factual
foundation, or is brought for an improper purpose."
Estate of Blue v. Cty. of L.A., 720 F.3d 982, 985
(9th Cir. 1997). Accordingly, Rule 11 sanctions may
be imposed: "[(1)] where a litigant makes a
‘frivolous filing, ' that is where he files a
pleading or other paper which no competent attorney could
believe was well grounded in fact and warranted by law; and
[(2)] where a litigant files a pleading or paper for an
‘improper purpose, ' such as personal or economic
harassment." Greenberg v. Sala, 822 F.2d 882,
885 (9th Cir. 1987).
frivolous filing is one that is "both baseless
and made without a reasonable and competent
inquiry." In re Keegan Mgmt. Co., Sec. Litig.,
78 F.3d 431, 434 (9th Cir. 1996). Thus, when a complaint is
challenged under Rule 11, a district court must
conduct a two-prong inquiry to determine whether the
complaint is frivolous: "(1) whether the complaint is
legally or factually baseless from an objective perspective,
and (2) if the attorney has conducted a reasonable and
competent inquiry before signing and filing it."
Holgate v. Baldwin, 425 F.3d 671, 676 (9th Cir.
2005); see also Conn. v. Borjorquez, 967 F.2d 1418,
1421 (9th Cir. 1992) (noting that courts look to whether
"a reasonable basis for the position exist[ed] in both
law and in fact at the time the position [was]
adopted"). The "baseless" and "reasonable
inquiry" requirements are conjunctive, not disjunctive.
Therefore, "[a]n attorney may not be sanctioned for a
[filing] that is not well- founded, so long as she conducted
a reasonable inquiry." In re Keegan, 78 F.3d at
434. By the same token, an attorney cannot "be
sanctioned for a complaint which is well-founded, solely
because she failed to conduct a reasonable inquiry."
Id. (emphasis omitted).
Rule 11 sanctions are party-initiated, the burden is
on the moving party to demonstrate why sanctions are
justified. See Tom Growney Equip., Inc. v.
Shelley Irrigation Dev., Inc., 834 F.2d 833, 837 (9th
Cir. 1987). The Ninth Circuit has held that Rule 11
sanctions are "an extraordinary remedy, one to be
exercised with extreme caution." Operating
Eng'rs Pension Trust v. A-C Co., 859 F.2d 1336, 1345
(9th Cir. 1988). Sanctions are reserved for
"rare and exceptional case[s] where the action is
clearly frivolous, legally unreasonable or without legal
foundation, or brought for an improper purpose." Id.
at 1344. "Rule 11 must not be construed so
as to conflict with the primary duty of an attorney to
represent his or her client zealously." Id.
are two sources of authority under which a district court can
sanction a party who has despoiled evidence:  the inherent
power of federal courts to levy sanctions in response to
abusive litigation practices, and  the availability of
sanctions under Rule 37 against a party who ‘fails to
obey an order to provide or permit discovery.'"
Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir.
2006) (quoting Fed.R.Civ.P. 37(b)(2)). Where the conduct for
which sanctions are sought is not in violation of a specific
discovery order governed by Rule 37, the district court must
rely on its "inherent authority" to impose
Court may dismiss a party's claims pursuant to the
Court's inherent authority "when a party has engaged
deliberately in deceptive practices that undermine the
integrity of judicial proceedings." Id. (citing
Anheuser-Busch, Inc. v. Natural Beverages Distribs.,
69 F.3d 337, 348 (9th Cir. 1995)). Because dismissal is a
harsh sanction, the Court must weigh five factors to
determine whether dismissal is an appropriate sanction:
(1) the public's interest in expeditious resolution of
litigation; (2) the court's need to manage its docket;
(3) the risk of prejudice to the party seeking sanctions; (4)
the public policy favoring disposition of cases on their
merits; and (5) the availability of less drastic sanctions.
69 F.3d at 348 (citing Henry v. Gill Indus., Inc.,
983 F.2d 943, 948 (9th Cir. 1993)). Dismissal is appropriate
only upon a finding of "willfulness, fault, or bad
faith." Leon, 464 F.3d at 958. Additionally,
"[d]ue process concerns further require that there exist
a relationship between the sanctioned party's misconduct
and the matters in controversy such that the transgression
threatens to interfere with the rightful decision of the
case." Anheuser-Busch, 69 F.3d at 348 (internal
quotation marks and brackets omitted).
moves for summary judgment on all eight of Luxul's claims
and on all three of NectarLux's counterclaims. NectarLux
also moves for sanctions against Luxul. Luxul moves for
summary judgment on all three of NectarLux's
counterclaims and for sanctions against NectarLux. In
opposition to NectarLux's motion, Luxul also raises
evidentiary objections to several declarations submitted by
NectarLux in support of NectarLux's motions and moves for
additional sanctions against NectarLux.
Court begins by addressing Luxul's evidentiary
objections. The Court next addresses both parties'
summary judgment motions together. The Court then turns to
each of the motions for sanctions.
Luxul's Evidentiary Objections to Declarations Submitted
by NectarLux in Support of NectarLux's Motions for
Summary Judgment and Sanctions
Luxul's opposition to NectarLux's motion for summary
judgment, Luxul raises evidentiary objections to and moves to
strike six of the declarations filed by NectarLux in support
of NectarLux's motions for summary judgment and
sanctions. Opp. to NectarLux Summ. J. Mot. at 21-25. Because
the Court's conclusions on Luxul's evidentiary
objections affect the evidence the Court considers in ruling
on the pending motions, the Court begins its analysis by
addressing Luxul's evidentiary objections to the
Declaration of Michael C. McKay in Support of Motion for
moves to strike the declaration of Michael C. McKay filed in
support of NectarLux's motion for summary judgment
("McKay Declaration"), ECF No. 176-1, for failing
to comply with 28 U.S.C. § 1746.
satisfy 28 U.S.C. § 1746, a declaration must include a
statement in "substantially the following form: . . .
‘I declare (or certify, verify, or state) under penalty
of perjury that the foregoing is true and correct.'"
The Ninth Circuit has held that a declaration need only
"substantially comply with the statute's suggested
language" for the Court to consider the declaration as
evidence. Commodity Futures Trading Com'n v. Topworth
Intern., Ltd., 205 F.3d 1107, 1112 (9th Cir. 1999)
(internal quotation marks omitted). Substantial compliance
requires the declarant to make two assertions in the
declaration: (1) that the statements in the declaration were
made "under penalty of perjury, " and (2)
"that the contents were true and correct."
Schroeder v. McDonald, 55 F.3d 454, 460 n.10 (9th
Cir. 1995); see also Nissho-Iwai Am. Corp. v. Kline,
845 F.2d 1300, 1306 (5th Cir. 1988) (28 U.S.C. § 1746
"permits unsworn declarations to substitute for an
affiant's oath if the statement contained therein is made
‘under penalty of perjury' and verified as
‘true and correct.' . . . [The declarant] never
declared her statement to be true and correct; therefore, her
affidavit must be disregarded as summary judgment
proof."); Aviles v. Quick Pick Express, LLC,
No. CV-15-5214-MWF (AGR), 2015 WL 5601824, at *2 (C.D. Cal.
Sept. 23, 2015) (refusing to consider declarations made
"under penalty of perjury" with the promise that
the declarant "could and would testify" to the
contents of the declaration if called as a witness but
missing an attestation of truth because "the notation of
‘under penalty of perjury' requires the corollary
attestation that the declaration is true"); United
States v. 8 Gilcrease Lane, Quincy Fla. 32351, 587
F.Supp.2d 133, 139 (D.D.C. 2008) ("[T]here are two
statements that are essential to a proper verification under
§ 1746: (i) an assertion that the facts are true and
correct; and (ii) an averment that the first assertion is
made under penalty of perjury."); Barroca v. Santa
Rita Jail, No. C04-0482 VRW (PR), 2006 WL 571355 (N.D.
Cal. Mar. 3, 2006) ("A declaration is not admissible as
evidence if not verified as true and correct and signed under
penalty of perjury."); Sterling Fifth Assocs. v.
Carpentile Corp., Inc., No. 03 Civ. 6569(HB), 2003 WL
22227960, at *5 (S.D.N.Y. Sept. 26, 2003) ("Section 1746
permits an unsworn declaration made under penalty of perjury
to substitute for a sworn affidavit, but only if the claimant
states that its contents are true and correct.");
Kersting v. United States, 865 F.Supp. 669, 676 (D.
Haw. 1994) ("As long as an unsworn declaration contains
the phrase ‘under penalty of perjury' and states
that the document is true, the verification requirements of
28 U.S.C. § 1746 are satisfied.").
objects to the McKay Declaration for failing to comply with
Section 1746. However, Luxul does not explain in what way the
McKay Declaration fails to comply with Section 1746. Opp. to
NectarLux Summ. J. Mot. at 22. McKay states in the
declaration: "I declare under penalty of perjury that
the foregoing is true and correct to the best of my knowledge
and subject to the penalty of perjury under the laws of
California." This satisfies both of the requirements of
Section 1746. See 28 U.S.C. § 1746;
Commodity Futures Trading Com'n, 205 F.3d at
1112. Therefore, Luxul's objection on this basis is
additionally objects to the contents of certain paragraphs
within the McKay Declaration for "improperly
characteriz[ing] the contents" of various exhibits
attached to the McKay Declaration and for making
"conclusory and argumentative statements regarding the
contents of these exhibits." Opp. to NectarLux Summ. J.
Mot. at 22. The Court concludes that the McKay Declaration
accurately describes the exhibits attached to the declaration
and that the descriptions are neither conclusory nor
argumentative. For example, Luxul objects to the statement
"A true and correct copy of Greg Frank's email
thanking NectarLux and Luxul for visiting HTC is attached as
Exhibit 24." McKay Declaration ¶ 25. Exhibit 24 is
an email from Greg Frank of HTC (also known as Human
Technologies Corporation) to Adam Lilien of NectarLux and
James Pan of Luxul in which Greg Frank states "THANK YOU
for visiting and for showing the confidence in Human
Technologies, our mission, and our people." ECF No.
175-10, Ex. 24. Luxul does not explain why McKay's
description of this email as "Greg Frank's email
thanking NectarLux and Luxul for visiting HTC" is