Allergia, Inc. v. Bouboulis
| Decision Date | 19 January 2017 |
| Docket Number | Case No.: 14–CV–1566 JLS (RBB) |
| Citation | 229 F.Supp.3d 1150 |
| Parties | ALLERGIA, INC., a California corporation, Plaintiff, v. Denis BOUBOULIS, an individual; and Does 1 Through 5, inclusive, Defendants. |
| Court | U.S. District Court — Southern District of California |
J. Mark Holland, J. Mark Holland and Associates, Irvine, CA, for Plaintiff.
Erwin J. Shustak, Shustak Reynolds & Partners, P.C., San Diego, CA, Kyla Janine Grant, Stuart Kagen, Kagen & Caspersen, New York, NY, Robert L. Hill, Law Offices of Robert L. Hill, Carlsbad, CA, for Defendants.
ORDER DENYING DEFENDANT'S MOTION FOR ADVANCEMENT OF LEGAL EXPENSES
Presently before the Court is Defendant Denis Bouboulis' Motion for Advancement of Legal Expenses. ("Mot.," ECF No. 59.) Also before the Court is Plaintiff Allergia, Inc.'s Response in Opposition to, ("Opp'n," ECF No. 62), and Defendant's Reply in Support of, ("Reply," ECF No. 64), Defendant's Motion. Plaintiff also filed an untimely supplemental response in opposition. ("Supp. Opp'n," ECF No. 63.) The Court vacated the hearing on the Motion scheduled for August 25, 2016 pursuant to Civil Local Rule 7.1(d)(1). (ECF No. 65.) After considering the parties' arguments and the law, the Court DENIES Defendant's Motion for Advancement of Legal Expenses.
Beginning several years ago, Defendant worked with Plaintiff's predecessor-in-interest, CLRS Technology, Inc., to develop and invent medical devices and related methods for using phototherapeutics to alleviate the symptoms of allergic rhinitis. (Second Amended Complaint ("SAC") ¶ 9, ECF No. 53.) In exchange for these contributions, Defendant received 116,111 shares of CLRS common stock. (Id. )
On August 5, 2010, CLRS filed a provisional patent application with the United States Patent and Trademark Office (USPTO), Application Ser. No. 61/371,172 (the "'172 Application"), directed to an invention for alleviating the symptoms of allergic rhinitis. (Id. ¶ 10.) Defendant was one of three named inventors. (Id. )
Approximately two months later, CLRS spun out ownership of the '172 Application to Plaintiff in connection with a corporate transaction involving a third party, Solta. (Id. ¶ 11.) Accordingly, Plaintiff was incorporated on October 5, 2010 under the laws of California. (Id. ¶ 12.) All of the then-existing shareholders of CLRS—including Defendant—received shares of stock in Plaintiff based on their then-existing shares in CLRS. (Id. ) Defendant was made Plaintiff's President. (See id. ¶ 16.)
CLRS then assigned all its rights in the '172 Application to Plaintiff. (Id. ¶ 13.) On October 12, 2010, Defendant signed the Assignment and Assumption Agreement (the "Assignment Agreement") on behalf of Plaintiff. (Id. ¶¶ 14–15.) The Assignment Agreement provided that "Assignor [CLRS] owns all of the assets set forth on Exhibit A attached hereto (the "Distributed Assets") ... [,]" (id. ¶ 15(a) (emphasis in original)), which included the '172 Application, (id. ¶ 15(d)). Pursuant to the Assignment Agreement, CLRS and Plaintiff desired to effect [... " and, "at the request of a party [to the Agreement] and without further consideration, the other party ... shall execute and deliver ... such other instruments of assignment ... as such party may reasonably request to effect the distribution by [CLRS] of the Distributed Assets." (Id. at ¶¶ 15(b), (c)). On October 13, 2010, Defendant also signed the License Agreement on behalf of Plaintiff. (Id. at ¶¶ 16–17.) The License Agreement expressly represented that CLRS "hereby assigned to [Plaintiff] all right, title and interest in and to the ATD Patent Rights," which was defined as including the '172 Application. (Id. ¶¶ 17(a), (c).)
When signing the Assignment and License Agreements, "Defendant was fully aware of the contents of the documents ..., and was fully aware of the purpose and intent of those documents." (Id. ¶ 18.) "Defendant gave no indication to Plaintiff ... that Defendant believed that CLRS and then [Plaintiff] did not own all of the '172 [Application] and related rights, and/or that Defendant believed that he had not assigned his rights therein to CLRS and then/thereby to [Plaintiff]." (Id. ¶ 19.) Indeed, "for at least many months ..., Defendant ... did not tell or indicate to [Plaintiff] ... that Defendant ... believed that he personally retained any ownership in the '172 [Application] and related rights," but rather he "remained silent on the issue." (Id. ¶ 24.)
On October 15, 2010, the initial incorporator of Plaintiff formally named Defendant as an initial director of Plaintiff. (Id. ¶ 20.) On that same date, the CLRS/Solta transaction was executed. (Id. ¶ 21.) The resulting Agreement and Plan of Merger (the Executive Summary) and Disclosure Schedule expressly referenced the Assignment and License Agreements. (Id. ¶¶ 21–22.)
A few months later, Defendant requested a telephone conference with the owners and directors of Plaintiff, during which he disclosed an outline of a strategic business plan for Plaintiff. (Id. ¶ 27.) Defendant proposed that he would undertake execution of the proposed plan and assume the duties of CEO of Plaintiff if he were granted a controlling stake in the capital stock of Plaintiff. (Id. ) In response, the shareholders and directors of Plaintiff requested that Defendant prepare and present a budget for his proposal. (Id. ¶ 28.) Several months passed without Defendant making the requested presentation. (Id. ) Instead, Defendant "secretly prepared a related and apparently competitive patent application ... without the knowledge and/or authorization of [Plaintiff] or its other shareholders." (Id. ¶ 29.) Defendant continued as President and director of Plaintiff until approximately May 2011. (Id. ¶ 30.)
On August 4, 2011, Plaintiff filed a full utility application, Ser. No. 13/198,672 (the "'672 Application"). (Id. ¶ 34.) Although Plaintiff solicited Defendant's signature on related filings, Defendant refused to participate or assist in the prosecution of the '672 Application. (Id. )
On August 5, 2011, Defendant secretly filed Application Ser. No. US 13/204,282 (the '282 Application). (Id. ¶¶ 29, 35.) The '282 Application "is so closely related to [the '172 Application] that it may foreseeably interfere with or negatively affect [Plaintiff]'s business efforts related to [Plaintiff]'s patent-pending technology.'' (Id. ¶ 29.) Defendant filed a related Patent Cooperation Treaty patent application, Ser. No. PCT/US12/049108 (the "'108 Application"), on August 1, 2012, and a related European Union application, Ser. No. 2,739,354 (the "'354 Application"), on February 26, 2014. (Id. ¶ 36.) "Defendant's patent applications include description and claims that are similar or even virtually identical to the description and claims ... in the Plaintiff's pending patent applications." (Id. ¶ 37.)
Plaintiff subsequently has "continued to make reasonable efforts to get Defendant to sign certain formal ‘assignment’ documents related to the '172 [Application]," but Defendant has refused. (Id. ¶ 39.) "[P]otential investors in Plaintiff's '172 patent-pending technologies and related opportunities have declined to invest based on Defendant['s] ... actions, including positions taken and communicated to those investors by Defendant ... regarding the parties' respective rights regarding Plaintiff's '172 patent-pending technologies and related opportunities." (Id. ¶ 40.)
On June 30, 2014, Plaintiff filed its initial complaint, asserting two causes of action: (1) declaratory judgment of patent application ownership and/or other patent and intellectual property rights, and (2) breach of fiduciary duty. (See ECF No. 1.) On August 17, 2015, the Court dismissed Plaintiff's first cause of action to the extent it attempted to correct ownership of the '282 Application and its second cause of action for breach of fiduciary duty. (See ECF No. 28.) Plaintiff filed its FAC on September 4, 2015 (see ECF No. 30), and on May 19, 2016 the Court dismissed Plaintiff's causes of action for breach of contract and fraud. (See ECF No. 51.)
On June 3, 2016, Plaintiff filed its SAC, alleging causes of action for (1) declaratory judgment of patent application ownership and/or other patent and intellectual property rights; (2) breaches of fiduciary duty and/or implied contract; and (3) fraud.
Defendant now moves this Court for advancement of legal expenses because Defendant argues that Plaintiff sued him in his capacity as a former officer or director of Plaintiff, and thus he is entitled to an advancement of fees pursuant to California Corporations Code section 317 and Plaintiff's Bylaws. The indemnification provision of Plaintiff's Bylaws states:
Section 6.1. Right to Indemnification . The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such person. The Corporation shall be required to indemnify a person in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorizedby the...
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Richmond v. Mikkelson
...pursuant to Corporations Code section 317 or the bylaws. In making this argument, appellants claim that Allergia, Inc. v. Bouboulis (S.D. Cal. 2017) 229 F.Supp.3d 1150, 1157 (Allergia) is instructive because, as in Allergia, their claims against Mikkelson relate to his actions in furtheranc......