United States District Court, C.D. California
FINDINGS OF FACT AND CONCLUSIONS OF LAW AND ORDER
GRANTING IN PART MOTION FOR TERMINATING SANCTIONS
O. CARTER UNITED STATES DISTRICT JUDGE
trial on this matter was held on October 29-31, 2019.
action arises out of a dispute between United Studios of Self
Defense (“USSD” or “Plaintiff”) over
alleged franchise and license agreements with Kristopher
Rinehart (“Rinehart”), Brent Murakami
(“Murakami”) and entities owned wholly or partly
by Rinehart and Murakami including Los Angeles Studios of
Self Defense (“LASSD”), South Bay Studios of Self
Defense (“SBSSD”), S.B. Ninja, LLC (“S.B.
Ninja”), and Rolling Hills USSD (“RHSSD”)
alleges the following eight claims:
1. Breach of Contract as to the Redondo Beach Franchise
2. Breach of Contract as to the Beverly Hills Franchise
3. Declaratory relief as to the Redondo Beach Franchise
4. Intentional interference with contract against Murakami
and S.B. Ninja
5. False designation/unfair competition under the Lanham Act
6. Unfair business practices under Cal. Bus. & Prof. Code
§§ 17200 et. seq. (“UCL”)
7. Accounting of profits made from Lanham Act violation
8. Declaratory relief as to rights and obligations under the
Redondo Beach and Beverly Hills Franchise Agreements
allege the following three counterclaims:
1. Declaratory relief as to lack of formation of the Redondo
Beach Franchise Agreement
2. Declaratory relief as to right to rescind Rolling Hills
3. Breach of contract as to Beverly Hills Franchise Agreement
also request the Court allow them to amend their
counterclaims to include the following three counterclaims
they allege have been proven at trial:
4. Declaratory relief as to illegality of Redondo Beach
5. Breach of contract as to Torrance and Rolling Hills
6. Declaratory relief as to illegality of Beverly Hills
trial, Defendants also requested terminating sanctions for
alleged bad faith behavior of Charles Mattera. See
Motion for Terminating Sanctions (“Motion”). Dkt.
Court issues the following findings of fact and conclusions
of law pursuant to Federal Rule of Civil Procedure 52. To the
extent that any findings of fact are included in the
conclusions of law section, they shall be deemed findings of
fact, and to the extent that any conclusions of law are
included in the findings of fact section, they shall be
deemed conclusions of law. The Court incorporates its
findings to GRANT IN PART Defendants' Motion, as
FINDINGS OF FACT
Plaintiff USSD is a corporation duly organized under the
state of California, with its principal place of business in
Irvine, California. USSD's owner and CEO is Charles
Defendants are Rinehart, an individual; Murakami, an
individual; SBSSD, a California limited liability company;
LASSD, a California limited liability company; S.B. Ninja, a
California limited liability company; and Counterclaimant
RHSSD, a California limited liability company.
SBSSD and Archie Currin are members of LASSD. S.B. Ninja and
Rinehart are members of SBSSD. Murakami is the sole member of
S.B. Ninja. S.B. Ninja and Tomas Orzco are members of RHSSD.
trial there was a factual dispute as to whether Murakami was
a member of SBSSD individually, or whether S.B. Ninja was a
member of SBSSD. The evidence at trial was that SBSSD had an
operating agreement dated July 1, 2011 listing Murakami as
the member of SBSSD rather than S.B. Ninja. [Ex. 652].
Murakami testified at trial that there was another operating
agreement dated August 5, 2011 [Ex. 653] for SBSSD postdating
the July 1, 2011 SBSSD operating agreement [Ex. 652]. The
August 5 agreement changed the membership in SBSSD from
Murakami to S.B. Ninja. [10/30/2019 Trans. Vol. III at
86:3-89:14], [10/31/2019 Trans. Vol. III at 15:24-16:11]. The
Court acknowledges that the information on file with the
California Secretary of State contradicts Murakami's
testimony of the purported August 5, 2011 operating agreement
because it reflects Murakami being a member of SBSSD
individually. [10/30/2019 Trans. Vol. II at 76:5-8]. However,
the Court finds Mr. Murakami's testimony and Exhibit 653
credible and determines that S.B. Ninja is a member of SBSSD
along with Rinehart.
Charles Mattera has no credibility with this Court.
Court finds Mattera lied under oath in his responses to
interrogatories wherein he claimed not to know about a
critical witness, namely, Alejandro Corrales. [Exs. 508-509].
It was subsequently learned that Mattera knew exactly who
Alejandro Corrales was because Mattera later admitted
Alejandro Corrales is an alias of Luis Auza. [10/29/2019
Trans. Vol. III at 63:1-64:5], [10/29/2019 Trans. Vol. IV at
46:20- 49:4]. Mattera's explanation, namely that he
“forgot, ” is not credible.
Mattera was not forthright in a May 19, 2019 declaration to
this Court when he said that he thought that all the
information provided to him by Luis Auza regarding the
“Jessica Allegations” up through Auza's
February 6, 2019 deposition was genuine. [Ex. 503 at 12].
Mattera later admitted he “stopped believing in Luis at
the end of the year  and into January .”
[10/29/2019 Trans. Vol. III at 79:24-80:9].
Court finds that Mattera knowingly lied on the stand when he
testified that he did not state that his attorneys were going
to bury evidence in this case. [10/29/2019 Trans. Vol. IV at
86:1-24], [10/29/2019 Trans. Vol. V at 39:21-23].
Exhibit 561 shows Mattera speaking to Auza about how the
“Jessica Allegations” can be used to leverage a
settlement in this case because Rinehart would not want to
lose his license to practice medicine.
Exhibit 566 shows Mattera discussing how he wants to go
“all-in” on the allegations to
Exhibit 573 shows Mattera discussing with Auza how Auza
should testify at his deposition including implying Auza
should perjure himself.
Exhibit 575 shows Mattera discussing with Auza how Auza
should testify at his deposition including implying Auza
should perjure himself.
Court finds that the Plaintiff through Mattera suborned
perjury of Luis Auza and witness tampered with Luis Auza
prior to Luis Auza's February 6, 2019 deposition.
[See Exs. 561, 566, 573, 575]. The audio recordings
capturing the conversations between Mr. Auza and Mattera
referenced above confirm such.
Court cannot make a finding that Mattera knew that the
“Jessica Allegations” were false with certainty
before the February 2019 deposition of Luis Auza. However,
the Court finds that Mattera's actions in the months
leading to the February 2019 deposition show, at minimum, a
reckless disregard for the truth of the allegations given
their extremely serious nature and given that Mattera was
actively using the allegations as leverage to get Rinehart to
settle the action.
Court also finds that Mattera acted in reckless disregard to
Rinehart's livelihood, family life, and personal and
Finally, the Court makes no adverse findings on the actions
of Plaintiff's counsel.
Given the above actions, the Court will make all relevant
factual findings requiring a credibility determination of
Mattera against the Plaintiff.
USSD is a franchisor of martial arts franchised studios.
[10/29/2019 Trans. Vol. II at 8:22-24]. Its franchisees
provide martial arts training and instruction in USSD's
system of “Shaolin Kempo Karate.” [10/29/2019
Trans. Vol. II at 9:1-4]. The franchisees also sell retail
martial arts supplies approved by USSD at their USSD's
franchised studios. [10/29/2019 Trans. Vol. II at 9:5-7]. The
services and goods provided by USSD's franchisees are
associated with USSD's brand name, service marks, and
registered trademarks (the “USSD Marks”) and its
system of Shaolin Kempo Karate. [Ex. 52].
USSD has the following trademarks on the principal register
with the United States Patent and Trademark Office in which
the USSD brand name and the USSD Logo have been registered as
both trademarks and service marks:
Registration No. 4232409, USSD, October 30, 2012;
Registration No. 3470475, USSD, July 22, 2008;
Registration No. 1758349, USSD, March 16, 1993; and
Registration No. 175295, USSD, February 16, 1992. [Ex. 52].
registrations are part of the USSD Marks and are used by USSD
and USSD's franchisees and USSD's trademark licensees
in connection with the sale of martial arts goods and
USSD was registered to offer and sell franchise offerings in
California with the Department of Corporations between
approximately 1993 and 1998. [10/29/2019 Trans. Vol. II at
26:20-27:20]. USSD sold franchises in California during this
time. [10/29/2019 Trans. Vol. II at 27:21-23]. USSD did not
re-register to sell franchises in California thereafter until
2012. [10/29/2019 Trans. Vol. II at 39:12-17].
USSD and Mattera are subject to a 1996 permanent injunction
by the state of California, which states the following, in
“IT IS THEREFORE ORDERED as follows: THE UNITED STUDIOS
OF SELF DEFENSE, INC. and CHARLES A. MATTERA and their
directors, successors in interest, controlling persons,
agents, employees, attorneys in fact, and all other persons
acting in concert or participating with them, or any of them,
are permanently enjoined from directly or indirectly:
1. Offering to sell, selling, arranging for the sale,
issuing, engaging in the business of selling, negotiating for
the sale of, or otherwise in any way dealing or participating
in the offer or sale of any franchise whether as part of the
scheme complained of in the complaint or otherwise, which is
not exempt from the registration requirements under the
California Franchise Investment Law, unless and until they
shall have first applied for and secured from the
Commissioner, a registration pursuant to California
Corporations Code Section 11111 authorizing the offer and
sale of such franchises.
2. Filing with the Commissioner any application, notice or
report which contain an untrue statement of a material fact
or omitting to state in such application, notice or report
any material fact which is required to be stated therein,
including, but not limited to the applications complained of
in the complaint…” [Exs. 525, 526]
USSD re-registered to offer and sell franchises in the State
of California in 2012, and USSD renewed its registrations
each year thereafter until 2017. [10/29/2019 Trans. Vol. II
at 39:12-40:20]. USSD was registered with the State of
California to offer and sell franchises at all times between
2012 and 2017. Id.
Alleged Franchisees and Licensees
Torrance and Rolling Hills License Agreement
May 28, 2009, Max J., Inc., entered into a trademark license
agreement with USSD (the “Torrance License
Agreement”). [Ex. 633]. The Torrance License Agreement
had a 20-year term. [Ex. 633 at 5, § 12; 10/29/2019
Trans. Vol. III at 54:6-15; 56:11-15].
J., Inc. thereafter transferred the Torrance License
Agreement to S.B. Ninja, and USSD consented to the transfer
on October 1, 2009. [Ex. 634].
Murakami, without any formal written agreement, operated the
RHSSD location with express permission from USSD from 2016
until March of 2018. [10/30/2019 Trans. Vol. I at
56:22-58:16]. In March of 2018, the relationship as to the
operation of the RHSSD location was formalized via the
“Torrance and Rolling Hills License Agreement.”
Torrance License Agreement was amended by the March 2018
Torrance and Rolling Hills License Agreement. [Ex. 38]. On
March 19, 2018, Murakami signed the Torrance and Rolling
Hills License Agreement on behalf of S.B. Ninja as it relates
to Torrance, and on behalf of RHSSD as it relates to Rolling
Hills. Therefore, S.B. Ninja is the licensee for the
operation of a Torrance USSD location and RHSSSD is the
licensee for a USSD location in Rolling Hills. Mattera signed
the agreement on behalf of the licensor, USSD. The governing
agreement for the Torrance and Rolling Hills locations is the
Torrance and Rolling Hills License Agreement. [Ex. 38].
Exhibit 38 has a three-year term set to expire on March 19,
agreement requires Murakami to administer all brown and black
belt testing at USSD headquarters and share the revenue with
USSD. [Ex. 38].
September 7, 2018, Murakami appeared on behalf of LASSD at
the USSD headquarters and was advised by counsel for USSD
that Murakami was required to leave USSD premises due to the
pending litigation or be charged with trespassing. [Ex. 580],
[10/31/2019 Trans. Vol. II at 39:11-40:05].
Court finds that asking Murakami to leave USSD premises due
to pending litigation may have seemed reasonable given the
circumstances. However, given that the underlying agreement
required Murakami to conduct all testing for brown and black
belts at headquarters, refusing Murakami access to
headquarters may have breached the agreement.
USSD was not authorized to sell franchises in 2018.