Virtue Global Holdings Ltd. v. Rearden LLC

          ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION, Re: ECF No. 139.

          JON S. TIGAR United States District Judge.

         Defendants seek a preliminary injunction enjoining Plaintiff Virtue Global Holdings Limited and Plaintiff's licensees from using the physical MOVA Assets; securing the MOVA Assets in a neutral location; ceasing all use of the MOVA Assets patented technology, trademarks and copyrighted material, and derivative works thereof; and prohibiting Shenzhenshi Haitiecheng Science and Technology Co., Ltd. and Virtue Global Holdings Limited from any further transfer of the MOVA Assets to any other party. ECF No. 139.

         The Court will grant Defendants' motion for a preliminary injunction.

         I. BACKGROUND

         This case is about the ownership of MOVA, a technology to "capture the facial performance of an actor" for use in movies, computer graphics, and other video applications, and its related intellectual property (collectively the "MOVA Assets"). See ECF No. 93 ¶ 9. Greg LaSalle and Stephen Perlman, former business collaborators and friends, are the principal actors in this dispute.

         Much of the background of this case has been recited in the Court's prior orders and need not be repeated here. See ECF No. 52 (Order on Defendants' Motion for Summary Judgment); ECF No. 103 (Order on Discovery Letter Brief). The Court, however, provides the following background for the purposes of resolving this motion.

         A. Procedural History

         Shenzhenshi Haitiecheng Science and Technology Co., Ltd. ("SHST") filed its Complaint in February 2015, seeking declaratory relief that it was the owner of the MOVA Assets. See ECF No. 1.

         On December 16, 2015, at the parties' Case Management Conference, the Court granted Defendants' request to amend their pleadings and to file counterclaims. See ECF No. 60. On February 25, 2016, Defendants answered the Complaint and filed Amended Counterclaims against SHST. ECF No. 76. Defendants brought the following counterclaims: declaratory relief, intentional interference with contract, intentional interference with prospective business advantage, negligent interference with prospective economic relations, conversion, trespass to chattels, misappropriation of trade secrets, infringement of four patents, trademark infringement, contributory trademark infringement, unfair competition and false designation of origin, violation of anti-cybersquatting, direct copyright infringement, secondary copyright infringement, unjust enrichment, and unfair competition. See generally id. On March 4, 2016, the Court stayed SHST's obligation to respond to Defendants' Amended Counterclaims until the resolution of the parties' declaratory relief claims. ECF No. 86.

         On March 18, 2016, the parties' filed a stipulation and proposed order to substitute SHST. ECF No. 92. Counsel for SHST represented that SHST transferred all of its interest in the MOVA Assets to Virtue Global Holdings Limited ("VGH"). Id. The parties agreed to the substitution of VGH as the Plaintiff in the case but also agreed that SHST would remain in the case as a Counterclaim Defendant and that all counterclaims asserted by Defendants against SHST would continue as pleaded against both SHST and VGH. Id. The Court granted the stipulation. ECF No. 96.

         On March 18, 2016, Defendants filed their Answer and Amended Counterclaims. ECF No. 95. Defendants added an additional counterclaim under the California Uniform Fraudulent Transfer Act.^[1] See id. ¶¶ 424-433. Defendants allege that SHST transferred the MOVA Assets to VGH "with the actual intent to hinder, delay or defraud Defendants in this case." Id. ¶ 425.

         B. Transfer of the MOVA Assets from SHST to VGH

         The document transferring the MOVA Assets from SHST to VGH was Dated:e day after the Court granted Defendants' request to amend their answer and to file counterclaims. See ECF No. 139, Seraphine Decl., Ex. 1. While SHST alleges to have paid $100, 000 to acquire the MOVA Assets from MO2 LLC in February 2013, VGH paid $25, 000 for the MOVA assets, with an additional $25, 000 due upon a decision by the Court in SHST's favor. ECF No. 139 at 10; see Ex. 1 at 4 (Bates No. SHST0002177).^[2] The agreement transfers the MOVA Assets to VGH but leaves all the liabilities with SHST. Id.

         VGH explains the purpose of the transfer as follows: VGH's parent, Digital Domain Holdings Limited ("DDHL"), "recognized that a company which it did not wholly own held title to the MOVA Assets and determined that - for reasons unrelated to this litigation - a wholly-owned entity should hold title." ECF No. 151 at 7; ECF No. 152, Chopra Decl. ¶ 7. DDHL accordingly took the steps to transfer title from SHST to VGH, a "holding company in the DDHL family." Chopra Decl. ¶ 7. VGH obtained title subject to the licenses which SHST previously granted. Id. VGH does not have physical possession of the MOVA Assets and has not used them. Id. ¶ 8.

         C. SHST and VGH's Discovery Conduct

         Defendants assert that SHST has not participated in good faith in discovery, which is the subject of a motion for default judgment Defendants filed against SHST now before Magistrate Judge Sallie Kim.^[3] See ECF No. 132; ECF No. 143.

         In a joint discovery letter brief submitted to Magistrate Judge Kim, counsel for SHST stated that SHST "appears to have gone dormant." ECF No. 132 at 5. Counsel disclosed:

VGH purchased the MOVA Assets from SHST in December 2015, and substituted into this case as Plaintiff. (Dkt. 96). Following the sale of the MOVA Assets, SHST appears to have gone dormant. Only in March 2016 - after SHST apparently went dormant - did Defendants' new counsel begin demanding verifications for SHST's discovery responses from the previous summer. Despite diligent efforts, SHST's counsel has not received any response to any of its multiple attempts to communicate with SHST, including to obtain the requested verifications. From SHST's silence, it appears that SHST no longer has any active business, no officers, no active board members, no employees, and no one else who can provide the verifications which Defendants began demanding in March 2016. Accordingly, the undersigned counsel will be taking necessary steps to initiate the process of withdrawing as counsel of record for SHST in this litigation.

Id. Counsel for SHST state they intend to "take the necessary steps to initiate the process of withdrawing as counsel of record for SHST in this litigation." Id.

         Additionally, Defendants propounded interrogatories on VGH requesting VGH to identify "all directors, shareholders, and/or employees of SHST and/or VGH" with knowledge about the acquisition of MOVA Assets by SHST from MO2 LLC and by VGH from SHST. See ECF No. 139, Seraphine Decl., Ex. 7. VGH responded that "there are no current directors, shareholders, and/or employees of VGH with knowledge of the acquisition of the MOVA Assets" from either MO2 LLC or SHST, id., notwithstanding that VGH purports to own those assets.

         D. Present Use of the MOVA Assets

         At present, Digital Domain 3.0, Inc. ("DD3"), a licensee of the MOVA Assets, possesses the physical MOVA Assets, and DD3 and LaSalle are using the Assets. ECF No. 151 at 8; ECF No. 44-2; LaSalle Decl. ¶ 52. DD3 is wholly-owned by Digital Domain-Reliance LLC ("DDR"), and 70% of DDR is owned by DDHL.^[4] DDHL owns 100% of VGH. ECF No. 144-3 Boyd Decl., Ex. B at 7 and 15.

         When LaSalle purportedly began secret negotiations to sell the MOVA Assets, he began with DD3. ECF No. 121 ¶¶ 113-116. Ultimately, LaSalle sold the MOVA Assets to SHST, although DD3's General Counsel and Vice President of Business Affairs, Joseph Gabriel, negotiated the sale of the MOVA Assets - on behalf of SHST. ECF No. 44-19, Gabriel Decl. ¶ 8. DD3 then entered into an exclusive license regarding the MOVA Assets and took possession of the physical MOVA Assets. Id. Gabriel's declaration is silent regarding the details of this transaction and how he could represent a party that is nominally adverse to his own client. Id. These circumstances give rise to substantial doubt whether DD3 is a wholly separate entity from either VGH or SHST.

         DD3 has used the MOVA Assets to provide visual effects for a number of movies, including for the character "Colossus" in the film "Deadpool." ECF No. 139 at 11. Defendants have not provided a license to any party for the MOVA Assets with which DD3 has used the MOVA Assets. Id.

         E. Motion for Preliminary Injunction

         On May 6, 2016, Defendants filed the instant motion for preliminary injunction regarding the MOVA Assets. ECF No. 139. Defendants filed the motion for preliminary injunction four days after SHST's counsel informed the Court that SHST "appears to have gone dormant." Defendants propose the injunction take the following form:

1. This preliminary injunction applies to the MOVA Assets, which are defined as the MOVA physical property and MOVA patents, trademarks and copyrighted material and derivative works identified in the Amended Counterclaims (D.I. 100) in this case;

2. This preliminary injunction includes the MOVA Assets in the possession of VGH and SHST, or in the possession of any of SHST's or VGH's licensees and their respective sub-licensees (including but not limited to DD3);

3. SHST, VGH and anyone in concert therewith on whom notice of this Order is served (including Mova Asset licensee DD3 and all of its Mova Asset licensees, and including the producers and distributors of motion pictures, video games or any other material in which any portion of the Mova Assets is used, even if such use is pursuant to a purported license issued by Plaintiff, its licensees and/or their respective sublicensees) shall cease all use of the physical MOVA Assets (and secure those assets in a neutral location), cease all use of all MOVA Assets trademarks, cease practicing all MOVA Assets patented inventions, and cease use or distribution of all MOVA Assets copyrighted material and all derivative works thereof;

4. SHST and VGH are hereby enjoined from making any purported transfer of the MOVA Assets to any other party;

5. This preliminary injunction shall remain in place until further Order by the Court.

ECF No. 139-15 (Proposed Order).

         On May 20, 2016, VGH filed an opposition to the motion. ECF No. 151. On May 27, 2016, Defendants filed a reply. ECF No. 159. The Court heard oral argument on June 16, 2016.

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