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PNY Technologies, Inc. v. Miller, Kaplan, Arase & Co, LLP

United States District Court, N.D. California

July 6, 2017

PNY TECHNOLOGIES, INC., Plaintiff,
v.
MILLER, KAPLAN, ARASE & CO, LLP, Defendant.

          ORDER GRANTING DEFENDANT'S APPLICATION FOR PERMANENT INJUNCTION [DOC. NO. 324]

          MAXINE M. CHESNEY, United States District Judge.

         Before the Court is defendant Miller, Kaplan, Arase & Co.'s ("Miller Kaplan") application for a permanent injunction, filed May 3, 2017, [1] by which it seeks to enjoin plaintiff PNY Technologies, Inc. ("PNY") from prosecuting against Michael Quackenbush ("Quackenbush") a civil action titled PNY v. Western Digital Corporation, which action PNY recently filed in state court. PNY has filed opposition, to which Miller Kaplan has replied. Having read and considered the papers filed in support of and in opposition to the motion, the Court rules as follows.[2]

         BACKGROUND

         A. The Instant Federal Action

         On May 30, 2014, PNY instituted the above-titled action by filing a complaint against Miller Kaplan, alleging claims arising from its assertion that Miller Kaplan, which had been engaged in 2010 by SanDisk Corporation ("SanDisk") to audit PNY's compliance with a license agreement, [3] engaged in misconduct. In its complaint, PNY alleged five Counts. The Second, Third and Fourth Counts, titled, respectively, "Fraud, " "Intentional Misrepresentation" and "Negligent Misrepresentation" (collectively, "fraud claims") were based on the allegation that Quackenbush, a "partner" at Miller Kaplan, falsely represented to PNY that "Miller Kaplan was independent of SanDisk" (see Compl. ¶ 14) and that PNY relied on said statement by "acquiesc[ing] in the commencement of the audit by Miller Kaplan" (see Compl. ¶ 15), resulting in injury to PNY (see Compl. ¶ 48).[4]

         The injuries alleged in the complaint were PNY's "submi[ssion] to the burdensome, time-consuming, and costly process of an audit" (see Compl. ¶ 47), Miller Kaplan's disclosure of "some of PNY's most highly sensitive and confidential information" to SanDisk, a "competitor" of PNY (see Compl. ¶¶ 47; see also Compl. ¶¶ 27-28), and, subsequent to SanDisk's receiving from Miller Kaplan a "defective and biased royalty audit, " SanDisk's filing of a "costly" and "wholly unnecessary lawsuit" (see Compl. ¶¶ 2, 30, 32). In the section of the parties' Joint Pretrial Statement titled "PNY's Statement, " these asserted injuries were further described by PNY as follows:

PNY paid monies to SanDisk based on an inflated audit caused by Miller Kaplan's lack of independence, which produced a trial and a settlement that would not have otherwise occurred. PNY also has sustained economic damages from its attorney's fees incurred defending against the lawsuit brought by SanDisk after Miller Kaplan issued its royalty audit report; it has also sustained lost profits from the dissolution of its relationship with SanDisk following Miller Kaplan's royalty audit report and a reduced market share following Miller Kaplan's disclosure [to SanDisk] of PNY's confidential information.

(See Joint Pretrial Statement, filed October 4, 2016, at 2:14-19.)

         A jury trial was conducted between October 31, 2016, and November 15, 2016, on which date the jury found, on PNY's fraud claims, [5] that (1) "Miller Kaplan [made] a false representation to PNY regarding independence, " (2) Miller Kaplan either "[knew] that the representation was false" or "[made] the representation recklessly or without regard for its truth, " (3) "Miller Kaplan intend[ed] that PNY rely on the misrepresentation, " and (4) "PNY reasonably rel[ied] on the representation, " but that (5) "PNY's reliance on Miller Kaplan's representation" was not "a substantial factor in causing harm to PNY."[6] (See Verdict Form.)

         On November 16, 2016, the Clerk of Court entered judgment in favor of Miller Kaplan. Thereafter, PNY filed a motion for new trial, which the Court denied on March 20, 2017. On April 13, 2017, PNY filed an appeal from the judgment and the denial of its motion for new trial, which appeal currently is pending before the United States Court of Appeals for the Ninth Circuit.

         B. The State Court Action

         On April 3, 2017, PNY instituted PNY v. Western Digital Corporation, by filing a complaint in the Orange County Superior Court. (See Compean Decl. Ex. A.) The complaint names as defendants (1) Western Digital Corporation ("Western Digital"), which is alleged to have "acquired SanDisk through a merger" in 2016 (see id. Ex. A ¶ 22), (2) James Brelsford ("Brelsford"), who was "SanDisk's Chief Legal Officer" at the time of the events alleged therein (see id. Ex. A ¶ 7), and (3) Quackenbush, a "partner" at Miller Kaplan (see id. Ex. A ¶ 26).

         The state court complaint asserts six causes of action, only one of which is alleged against Quackenbush, specifically, the Third Cause of Action, titled "Civil Conspiracy to Commit Fraud."[7] In said cause of action, asserted also against Western Digital and Brelsford, PNY alleges that "Quackenbush and Brelsford agreed to act in concert to defraud PNY into consenting to the Royalty Audit by Quackenbush and his firm Miller Kaplan" and that their "actions did defraud PNY." (See id. Ex. A ¶ 174.) PNY further alleges that said defendants "acted on these agreements by making blatant and material misrepresentations to PNY" (see id. Ex. A at 179), specifically, that both Brelsford and Quackenbush falsely told PNY that Miller Kaplan was "independent" (see id. Ex. A at ¶¶ 10, 61-65, 71, 154; see also id. Ex. A ¶ 173). As to injuries claimed as a result of the asserted fraud, PNY alleges it "suffered special damages in the form of lost profits, lost market share and attorney's fees due to unnecessary litigation" (see id. Ex. A ¶ 180), that it has "accrue[d] millions of dollars in administrative fees related to [the] flawed and biased audit" (see id. Ex. A ¶¶ 162, 173), and that it has paid "millions of dollars more in royalties than it otherwise would have" when it settled the lawsuit filed by SanDisk (see id. Ex. A ¶¶ 17, 162, 173).

         DISCUSSION

         In its application, Miller Kaplan seeks an injunction precluding PNY from prosecuting the above-described state court action against Quackenbush. In support thereof, Miller Kaplan argues that the state ...


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