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WeRide Corp. v. Huang

United States District Court, N.D. California, San Jose Division

October 28, 2019

WERIDE CORP., et al., Plaintiffs,
v.
KUN HUANG, et al., Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART MOTION TO MODIFY THE PRELIMINARY INJUNCTION Re: Dkt. No. 166

         In March of this year, the court granted the motion for preliminary injunction (“the PI Order”) brought by Plaintiffs WeRide Corp. and WeRide, Inc. (collectively “WeRide”). Dkt. No. 116 (the “PI Order”). The Preliminary Injunction binds Defendants Zhong Zhi Xing Technology Co. Ltd. (“ZZX”), AllRide.AI, Inc. (“AllRide.AI, ” collectively with ZZX, as “the AllRide Defendants”), and Kun Huang. Id. at 24-28. The court denied the motion as to Defendant Jing Wang, finding-as relevant here-that WeRide had not shown that it was likely to succeed on the merits of its trade secret misappropriation claim against him. Id. at 16. Since then, the parties have been engaged in discovery, the assigned Magistrate Judge has considered and ruled on discovery disputes (Dkt. No. 252), WeRide amended its complaint to add Kaizr, Inc. and ZKA, Inc. (together with the AllRide Defendants as the “Corporate Defendants”) as defendants, the AllRide Defendants notified that court that they had destroyed potentially discoverable documents (Dkt. No. 231), and the assigned Magistrate Judge ordered the appointment of both a neutral forensic inspector to investigate that destruction and a special master to resolve any disputes related to the forensic neutral's investigation (Dkt. Nos. 266, 273). The parties and the court have been busy.

         WeRide now moves the court to modify the Preliminary Injunction, based on new evidence obtained during discovery, to enjoin Wang, Kaizr and ZKA to the Preliminary Injunction as issued on March 22, 2019, to enjoin all Defendants from creating any new legal entities or otherwise shuffle assets between their extant corporate entities, to enjoin all Defendants from using any source code that the AllRide Defendants possessed in October 2018 (the “October 2018 Source Code”), to compel Corporate Defendants to disclose their complete corporate structures and the persons and entities that control them, to compel Defendants to make their entire source code repositories available for inspection, and to compel the Corporate Defendants to make their complete email servers available for inspection. The court has considered the parties' briefing and heard their oral arguments. The court will first consider whether to modify the Preliminary Injunction to include Wang, Kaizr, and ZKA. The court will then turn to whether to modify the injunctive relief ordered. The court partially grants and partially denies the motion.[1]

         I. Enjoining the New Parties

         a. The Court's Authority to Expand the Injunction to New Parties

         The instant motion asks the court to modify the Preliminary Injunction based on its inherent authority to do so, and in the alternative, to do so as a motion for reconsideration. The court first addresses Wang's arguments (a) that that the court lacks authority to modify the injunction to bind Wang, and (b) that the motion must be denied because it does not comply with the procedural requirements of Civil Local Rule 7-9 for motions for reconsideration. Wang is incorrect on his first argument, so the court need not consider the second.

         It would be improper, Wang argues, to allow WeRide to modify the Preliminary Injunction to bind him because the court denied the original motion against him. The court is not persuaded. “An injunction is an exercise of a court's equitable authority, to be ordered only after taking into account all of the circumstances that bear on the need for prospective relief.” Salazar v. Buono, 559 U.S. 700, 714 (2010). “The source of the power to modify is of course the fact that an injunction often requires continuing supervision by the issuing court and always a continuing willingness to apply its powers and processes on behalf of the party who obtained that equitable relief.” Sys. Fed'n No. 91, Ry. Emp. Dep't, AFL-CIO v. Wright, 364 U.S. 642, 647 (1961); see also A&M Records, Inc. v. Napster, Inc., 284 F.3d 1091, 1098 (9th Cir. 2002) (“A district court has inherent authority to modify a preliminary injunction in consideration of new facts.”).

         Under the facts here, the court finds that it may exercise its equitable authority to modify the Preliminary Injunction to bind Wang. First, Wang remains subject to the court's jurisdiction. He owns a home in this judicial district. Dkt. Nos. 210 ¶ 21, 261 ¶ 21. He has answered the Second Amended Complaint. Dkt. No. 261. Second, the court denied the original motion as to Wang's role in the alleged trade secret misappropriation because WeRide had not shown it was likely to succeed on those claims. PI Order at 16-17. The court based its decision on Wang's declaration denying WeRide's factual allegations. Id. However, as discussed more fully below, Wang's declaration on these points was, at best, inaccurate. Wang frustrated the intention of the Preliminary Injunction by making these inaccurate statements to the court. Provided that the other preliminary injunction factors support enjoining Wang, the court has the equitable power to modify the Preliminary Injunction to ensure that it will accomplish its intended result. Cf. United States v. United Shoe Mach. Corp., 391 U.S. 244, 251 (1968).

         Similarly, the court finds that it has the equitable authority to bind ZKA and Kaizr even though they were only recently added as defendants because, as discussed below, the court finds, for this motion, WeRide had sufficiently shown that they are respectively the alter egos of Huang and the AllRide Defendants. See I. C. C. v. Rio Grande Growers Co-op., 564 F.2d 848, 849 (9th Cir. 1977). Because Huang and the AllRide Defendants are already enjoined, the court will not apply the traditional preliminary injunction factors to ZKA and Kaizr.

         b. Jing Wang

         As to Wang, the court will first consider whether WeRide has presented sufficient evidence to show that it is likely to succeed on its misappropriation claims against Wang, and it will then decide whether WeRide has met the other preliminary injunction factors.

         i. WeRide is Likely to Succeed on Its Misappropriation Claims Against Wang

         WeRide seeks to hold Wang liable for trade secret misappropriation as the controller of the AllRide Defendants. The court, of course, has already held that WeRide is likely to succeed on its trade secret misappropriation claims against them. See PI Order at 12-16. Corporate officers do not incur liability for the torts of their businesses merely through their position, but they may be held liable in certain circumstances. PMC, Inc. v. Kadisha, 78 Cal.App.4th 1368, 1379 (2000), as modified on denial of reh'g (Apr. 7, 2000). In PMC, Inc. v. Kadisha, the California Court of Appeal “h[e]ld that a corporate officer or director may be liable for an intentional tort if” three factors are met. Id. at 1372. First, the defendant officer must have “purchased or invested in the corporation the principal assets of which were the result of unlawful conduct.” Id. Second, that person must have “control of the corporation and appointed personnel to run the corporation, which was engaging in unlawful conduct.” Id. And finally, “the officer . . . did so with knowledge or, with respect to trade secret misappropriation, when she or he had reason to know, of the unlawful conduct.” Id.

         In denying the original motion as to Wang, the court reasoned, “Wang denies receiving any payment for his consulting with ZZX or AllRide ([Jan.] Wang Decl. ¶ 27), denies having anything to do ZZX's product development or technical work (id. ¶ 29), or calls media reports that he controls ZZX ‘inaccurate' (id. ¶ 37), and he denies encouraging Huang to leave WeRide for ZZX (id. ¶ 24).” PI Order at 16-17 (citations to Jan. Wang Decl. (Dkt. No. 68-1) in the original). Evidence unearthed in discovery contradicts these representations.

         As to the first PMC factor, the court finds that WeRide has shown that it is likely to succeed at showing that Wang has invested in the AllRide Defendants. First, Wang's wife initially and “nominally” owned 90 percent of the parent company of ZZX, and has since acquired 100 percent of it. Landes Ex. 42 at 8. Second, Wang loaned ZZX $200, 000 at three percent interest in 2018. Landes Ex. 39; compare Id. with Jan. Wang Decl. ¶ 27 (“I have not received any consulting or other payments from ZZX.”). Additionally, at some point earlier this year, Wang began negotiations to join ZZX as its CEO; those negotiations included a “future ownership interest is part of the calculation about whether Jing Wang will accept the offer.” Id. At the hearing on the instant motion, Wang's counsel represented to the court that Wang has accepted that offer and become ZZX's CEO. Oct. 10, 2019 Hr'g Tr. at 35:24-36:2. The court finds that WeRide has carried its burden to show that Wang has invested in the AllRide Defendants.

         The second PMC factor considers whether Wang has control of the AllRide Defendants and has appointed personnel to the ZZX Defendants. Again, WeRide has presented sufficient evidence. In his January declaration, Wang told this court that he “ha[s] nothing to do with ZZX's . . . operations.” Jan. Wang Decl. ¶ 29. The evidence though contradicts this statement. An AllRide/ZZX business plan recovered from one of Huang's devices, and later produced by Wang, identifies Wang as “the pioneer of autonomous driving in China, ” who “le[ads]” the AllRide Defendants. Landes Ex. 36 at 47. An employee chart for the AllRide Defendants indicates that the three members of the “Management” team, including Huang, all report to “jing.” Landes Ex. 9. In November 21, 2019, the AllRide Defendants and FAW-a state-owned Chinese car manufacturer-held a meeting to discuss a collaboration. Landes Ex. 4. Wang attended the meeting, and the minutes of that meeting identify Wang as one of AllRide's representatives. Id. Shortly before that meeting, FAW created a Power Point presentation that describes Wang as the “principal” and “soul” of the AllRide Defendants, and notes that “Jing Wang hasn't held a position at AllRide[] yet.” Landes Ex. 24 at 1-2 (emphasis added). Wang admits to “facilitate[ing]” the AllRide/ZZX - FAW collaboration, but he disputes the accuracy of the minutes identifying him as an AllRide/ZZX representative. Wang Ex. K at 2, 6. He has attended at least one meeting with Huang and potential investors. Landes Ex. 8. He has also been involved with the AllRide Defendants' hiring. He introduced Huang to the AllRide Defendants' formal founders. Landes Exs. 37 at 137:18-22, 42 at 4. The AllRide Defendants offered Huang a job the next day. Landes Ex. 37 at 139:12-14. Wang interviewed at least one other job applicant for the AllRide Defendants. Wang Ex. K at 7-8. The court finds that WeRide has satisfied the second PMC factor.

         Finally, the third PMC factor looks at whether Wang had reason to know of the alleged trade secret misappropriation by Huang and the AllRide Defendants. Earlier this year, Wang represented to the court that he “ha[s] nothing to do with ZZX's product development . . . [or] its technical work.” Jan. Wang Decl. ¶ 29. Again, this statement is at odds with the evidence. Wang now admits that he has been provided with high level reports on the AllRide Defendants' technological capabilities. Wang Ex. K at 3. In August 2018 Huang sent him, and ZZX engineers an email with the subject line “Engineers Weekly Status Update” that included a note to “[p]lease include Kun . . . and Jing for now.” Landes Ex. 5. These reports were intended to cover the engineers' “1. Work done last week; 2. Plan for next week; 3. Roadblockers, help needed, dependency on other team or members.” Id. ZZX's 30(b)(6) witness, who had received this email, testified that he understood the email to mean that he should copy Wang when sending such reports. Landes Ex. 33 at 166:5-9. Huang testified that it was “fair” to say he “was deliberately circulating [ZZX] engineering reports to Wang.” Landes Ex. 37 at 356:11-18. Huang also sent Wang an email to schedule “weekly” one-on-one meetings between them so they could “sync.” Landes Exs. 20-22. Given Wang's close connection with the AllRide Defendants' engineering development and his repeated contacts with Huang, the court finds that WeRide has met the third PMC factor.

         WeRide has shown that WeRide is likely to succeed at showing that Wang should be held liable under PMC for the alleged misappropriation. WeRide has met the first factor of the preliminary injunction test. See Winter v. Nat. Res. Def. Council, 555 U.S. 7, 20-22 (2008).

         ii. The Other Preliminary Injunction Factors Weigh In Favor of Binding Wang

         To enjoin a defendant, a plaintiff must show “that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” Winter, 555 U.S. at 20. The court has already found that WeRide has shown that it will face irreparable harm absent the Preliminary Injunction, that the balance of hardships tips in favor of WeRide, and that the public interest would be served by the Preliminary Injunction. PI Order at 21-22. Because the court finds that WeRide is likely to succeed on its misappropriation claim against Wang based on his control of the AllRide Defendants, the court finds that the same reasoning the PI Order applied to the AllRide Defendants applies to Wang to the extent that he should be bound by the Preliminary Injunction.

         First, absent the Preliminary Injunction, WeRide's alleged trade secrets may be disclosed-destroying their value-and Wang and the AllRide Defendants would gain an unfair competitive edge over WeRide. Id. at 21 (citing Comet Techs. U.S.A. Inc. v. Beuerman, 2018 WL 1990226, at *5 (N.D. Cal. Mar. 15, 2018); Waymo LLC v. Uber Techs., Inc., 2017 WL 2123560, at *11 (N.D. Cal. May 15, 2017)). Enjoining Wang will help preserve the status quo as it existed before the alleged misappropriation. Next, the balance of hardships tilts in WeRide's favor because “[i]t is no burden for [Wang] to do what the law already requires, ” i.e., not use WeRide's alleged trade secrets. PI Order at 22 (citing Henry Schein, Inc. v. Cook, 191 F.Supp.3d 1072, 1077 (N.D. Cal. 2016); Pyro Spectactulars North, Inc. v. Souza, 861 F.Supp.2d 1079, 1092 (E.D. Cal. 2012)). Wang's arguments about the supposed reputational harm he would suffer do not move the court. Any such harm does not outweigh the risk of the disclosure of WeRide's alleged trade secrets. Finally, the public interest is served by the Preliminary Injunction because it protects intellectual property rights. PI Order at 22 (citing Comet Techs., 2018 WL 1990226, at *5; Waymo, 2017 WL 2123560, at *11-12).

         At the October 10 hearing, Wang's counsel represented that, since briefing closed on this motion, Wang has formally taken the role of CEO at the AllRide Defendants, and he consents to be bound by the Preliminary Injunction through his formal role. Oct. 10, 2019 Hr'g Tr. at 35:24-26:2. The court appreciates Wang's candor on this matter. However, for the reasons discussed above, the court finds that WeRide has carried its burden against Wang based on his earlier conduct and separately from his formal role at the AllRide Defendants. The court will enjoin Wang in his personal capacity.

         c. Kaizr

         The court finds it prudent to briefly recount the procedural history as it relates to Kaizr. WeRide moved for leave to amend its complaint to, among other things, add Kaizr and ZKA as defendants on June 28, 2019. Dkt. No. 161. It filed the instant motion seeking to modify the Preliminary Injunction to include Kaizr on July 5. Dkt. No. 166. On August 6, WeRide, with leave of court, filed its Second Amended Complaint (“SAC”). Dkt. No. 209. The summons issued to Kaizr was returned executed on September 10. Dkt. No. 284. Kaizr-represented by the same counsel as Wang-answered the SAC on September 30, 2019. Dkt. No. 293. Kaizr did not file an opposition to the instant motion or make any other filing in connection with this motion. Wang's opposition, in a footnote, includes ZKA and Kaizr in its argument that the court may not add them to the injunction through a motion to modify. See infra § I.a; see also Wang Opp'n at fn. 2. The opposition filed by the AllRide Defendants states that it does not address matters related to Kaizr because they and Kaizr have separate counsel. AllRide Opp'n at fn. 1. It then argues that there is no evidence that the AllRide Defendants own Kaizr or that they transferred WeRide's source code to Kaizr. Id. at 19. At the October 10 hearing, Kaizr's counsel represented that Kaizr had not been served with the instant motion, but did not provide any authority that the issue of service would support denying the motion as to Kaizr. Oct. 10, 2019 Hr'g Tr. at 37:3-4, 14-16. Nor did he argue against the motion based on any evidence in the record. See generally ...


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