United States District Court, N.D. California
ORDER RE: COUNTERCLAIMANT'S MOTION IN LIMINE TO
EXCLUDE EVIDENCE REGARDING ALLEGED PARTNERSHIP RE: DKT. NO.
JACQUELINE SCOTT CORLEY UNITED STATES MAGISTRATE JUDGE.
Caleb Avery t'Bear sued Defendant Barry Forman in
California state court for breach of fiduciary duty,
declaratory relief, and an accounting arising out of a failed
business venture. (Dkt. No. 1-1.) Mr. Forman removed the
action to this Court pursuant to 28 U.S.C. § 1441(b),
based on diversity jurisdiction under 28 U.S.C. § 1332.
(Dkt. No. 1 at ¶ 4.) Mr. Forman subsequently brought
counterclaims for breach of loan agreements, rescission, and
in the alternative, equitable relief. (Dkt. No. 84.) Mr.
Forman's counterclaim for rescission is the only
remaining claim in this action following the Court's
February 6, 2019 order granting Mr. Forman's motion for
summary judgment on Mr. t'Bear's complaint, denying
Mr. Forman's motion for summary judgment on his
rescission counterclaim, denying Mr. t'Bear's
cross-motion for summary judgment on Mr. Forman's
counterclaims, (Dkt. No. 142), and the Court's February
26, 2019 order granting Mr. Forman's motion for summary
judgment on his breach of contract counterclaim, (Dkt. No.
matter is scheduled for a bench trial on August 20, 2019.
(See Dkt. No. 177.) At a telephone conference on May
23, 2019, Mr. Forman requested leave to file an early motion
in limine regarding evidence related to the existence of a
partnership between Mr. t'Bear and Mr. Forman, and the
Court granted that request. (Dkt. No. 181.) Mr. Forman filed
his motion on May 30, 2019, (Dkt. No. 182), and Mr.
t'Bear filed his response on June 20, 2019, (Dkt. No.
183). After careful consideration of the parties'
briefing, the Court GRANTS Mr. Forman's motion because
the existence of the alleged partnership is not material to
Mr. Forman's rescission counterclaim.
factual background of this case is set forth in detail in the
Court's February 6, 2019 order, (see Dkt. No.
142 at 2-12), and the Court incorporates that background
here. For ease of reference, the Court restates below
background relevant to the instant motion.
December 7, 2011, Mr. t'Bear emailed Mr. Forman a
“Memorandum of Understanding” (“MOU”)
reflecting a discussion between the parties to reconfigure
the “payout plan” for promissory notes reflecting
loans made by Mr. Forman to Mr. t'Bear so that Mr.
t'Bear could obtain $6 million in funding for FairWay
through the sale of notes secured by the FairWay IP. (Dkt.
No. 99-4, Ex. 51 at 39-56.) In the cover email, Mr.
t'Bear states, in pertinent part: “As you, [Mr.
Forman], and I, discussed, as part of the paperwork Urso Ltd.
is assigning the FairWay IP portfolio to an IP Holding
company, FairWay IP Holdings Ltd. to securitize the $6M in
Notes being offered.” (Id. at 39.)
Some of the individual Notes in the series have pledged my
general and entire asset base [including patents assigned to
Urso Ltd.] as collateral. As we discussed, as
part of our current fundraising, the FairWay Intellectual
Property (patents, trademarks, etc.) is being assigned from
Urso Ltd. to FairWay IP Holdings Ltd. [Cayman Islands]. To
complete that assignment, I would ask you to accept and
confirm your understanding that Urso Ltd. would not have
direct control over these Intellectual Property assets but
continue to have indirect rights to them through its 100%
sole ownership of FairWay IP Holdings.
Specifically, while Urso would no longer have direct title to
these assets, it would have rights to the cash flow from the
licensing of those assets [net of FairWay IP Holdings
obligations to maintain them (legal costs, filing fees,
annuities, etc.)], such cash to be received as expense
reimbursements or dividends from FairWay IP Holding to Urso.
In summary, your lien interest [per the Notes]
would continue on my general assets including: 1) my 100%
ownership of Urso Ltd.; 2) by proxy, Urso Ltd.'s majority
ownership of FairWay International; 3) my shares in FairWay
Financial U.S., Inc.; and 4) general assets. But it would
specifically no longer include direct lien on FairWay
Intellectual Property, but rather depend on Urso's sole
ownership of FairWay IP Holdings for
repayment of the Notes. The Notes (2006-2011), as
a series, are amended to that understanding.
(Id. at 56 (bracketed language in original)
(emphasis added).) Mr. Forman attests that:
[Mr. t'Bear] told me that in order to consummate the
transaction [for the $6 million in new funding], he needed a
“carve out” of my direct security interest in the
FairWay IP. In return, my loans would be repaid by the end of
2012, and I would retain my security interest in all of his
other general assets, including, but not limited to, his 100%
ownership in Urso.
(Dkt. No. 99-1 at ¶ 64.) Indeed, Mr. t'Bear's
December 2011 cover email states, in pertinent part:
“For clarity sake, I am attaching the current Loan
Manager summarizing all personal Notes outstanding from me to
you and a Memorandum of Understanding outlining the carve out
of the IP in the general liens on my property to now
accommodate the indirect control of the IP.” (Dkt. No.
99-4, Ex. 51 at 39.) Mr. t'Bear's cover email also
states that pursuant to “[t]he payout plan, ” he
would pay Mr. Forman the balance owed on the loans within six
months, “with a small balance by year-end 2012.”
(Id.) Mr. Forman signed and returned the MOU to Mr.
t'Bear on December 12, 2011. (Dkt. No. 99-4, Ex. 55 at
Forman asserts that he “signed the MOU in reliance on
[Mr. t'Bear's] promised consideration, including: (1)
[Mr. Forman] would be repaid by the end of 2012, and (2) [Mr.
Forman] would retain his security interest in [Mr.
t'Bear's] 100% ownership of Urso.” (Dkt. No.
182 at 4.) As noted above, those terms are included in the
MOU. Mr. Forman's counterclaim seeks rescission of the
December 2011 MOU because it is “invalid and
unenforceable due to failure of consideration.” (Dkt.
No. 84 at ¶¶ 20-31.) The Court has previously
characterized Mr. Forman's rescission counterclaim as
“in effect a claim that Plaintiff breached the
MOU.” (Dkt. No. 142 at 39.) The issue before the Court
then is whether evidence related to the existence of a
partnership between Mr. t'Bear and Mr. Forman is relevant
to resolving whether rescission of the MOU is warranted
because Mr. t'Bear breached the MOU. It is not.
Court's February 6, 2019 order expressly rejected Mr.
t'Bear's argument that the existence of a partnership
“‘is intertwined with any status of the Demand
Notes of 2006-2011.'” (Dkt. No. 142 at 28 (quoting
Dkt. No. 118 at 18).) In pertinent part, the Court noted:
[Mr. t'Bear's] argument is belied by the terms of the
notes themselves-none of which mention a partnership-and the
Loan Managers, which clearly show that [Mr. t'Bear]
understood that the notes at issue were personal loans from
[Mr. Forman] to [Mr. t'Bear]. [Mr. t'Bear's]
argument is also undercut by the timeframe of the loans-31 of
the 33 notes at issue were executed before [Mr. Forman]
proposed terms of a partnership to [Mr. t'Bear] in
January 2010 and before [Mr. t'Bear] responded to those
proposed terms with the draft Preliminary Collaboration
Agreement in March 2010. The two loans that came after, in
May 2011 and October 2011, contain identical terms and
formatting (though different loan amounts) to the notes that
preceded them in September 2006, November 2006, December 2006
(2), January 2007 (2), February 2007, March 2007 (3), April
2007, May 2007, June 2007, July 2007 (2), August 2007,
September 2007, October 2007 (2), November 2007 (2), December
2007 (2), January 2008, February 2008, April 2008, and May
2008. Again, none of the 33 notes at issue reference a
partnership or any other type of business relationship.
The December 2011 MOU from [Mr. t'Bear] to [Mr. Forman]
detailing a restructured “payout plan to [Mr. Forman]
that would retire the series of Promissory Notes dated from
2006-2011” . . . does not contain any reference to the