T'Bear v. Forman

Decision Date06 February 2019
Docket NumberCase No.17-cv-00796-JSC
Citation359 F.Supp.3d 882
CourtU.S. District Court — Northern District of California
Parties Caleb Avery T'BEAR, Plaintiff, v. Barry FORMAN, Defendant.

Caleb Avery t'Bear, pro se.

Charles Ralph Jaeger, Farmer Brownstein Jaeger LLP, San Francisco, CA, for Defendant.

ORDER RE: DEFENDANT'S MOTION FOR SUMMARY JUDGMENT ON PLAINTIFF'S COMPLAINT; CROSS MOTIONS FOR SUMMARY JUDGMENT ON DEFENDANT'S COUNTERCLAIMS; DEFENDANT'S MOTION FOR SANCTIONS; AND PLAINTIFF'S MOTION FOR LEAVE TO AMEND

Re: Dkt. Nos. 99, 101, 103, 111, 134

JACQUELINE SCOTT CORLEY, United States Magistrate Judge

Plaintiff 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.1 (Dkt. No. 1-1.)2 Defendant 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.) Defendant subsequently brought counterclaims for breach of loan agreements, rescission, and in the alternative, equitable relief. (Dkt. No. 84.) Now pending before the Court are Defendant's motion for summary judgment on Plaintiff's complaint, (Dkt. No. 103), the parties' cross motions for summary judgment on Defendant's counterclaims, (Dkt. Nos. 99 & 101), Defendant's motion for sanctions, (Dkt. No. 111), and Plaintiff's "motion to allow motion for leave to amend filing of amended affirmative defenses," (Dkt. No. 134). After careful consideration of the parties' briefing, and having had the benefit of oral argument on January 31, 2019, the Court GRANTS Defendant's motion for summary judgment on Plaintiff's complaint, DENIES in part and DEFERS in part pending supplemental briefing Defendant's motion for summary judgment on Defendant's counterclaims, DENIES Plaintiff's cross motion for summary judgment on Defendant's counterclaims, DENIES Defendant's motion for sanctions, and DENIES Plaintiff's motion for leave to amend.

BACKGROUND
I. Factual Background
A. FairWay

Beginning in 2006, the parties discussed plans for creating "a series of affiliated domestic and foreign companies" referred to by Plaintiff as "The FairWay Group" ("FairWay"), to monetize intellectual property (the "FairWay IP") developed by Plaintiff "for pricing offerings of securities and other assets." (Dkt. Nos. 1-1 at ¶ 6; 29 at ¶ 6; 99-1 at ¶ 3.) The entities involved include, "Urso Ltd (a Belize company) ("Urso"), FairWay IP Holdings, Ltd (a Cayman Island company) ("FairWay IP Holdings"), FairWay Financial U.S., Inc. (a Delaware company), FairWay Pricing Technologies, LLC (a Delaware company) [ ("FairWay Pricing") ], and FairWay International Kft3 (a Hungarian company)." (Dkt. No. 99-1 at ¶ 3.)

In May 2008, Plaintiff "assigned to Urso as corporate assets all personal patents, trademarks, and business plans related to FairWay inventions or businesses." (Dkt. No. 99-4, Ex. 44 at 7.) In December 2011, Plaintiff transferred ownership of the FairWay IP from Urso to FairWay IP Holdings. (Dkt. No. 99-4, Ex. 55 at 165.) Prior to August 2016, Plaintiff held a 100% ownership interest in Urso; Plaintiff currently owns 25% of the company and remains its president.4 (Dkt. No. 99-8, Ex. C at 59:11-22, 60:19-21.) Urso owns 100% of FairWay IP Holdings, which owns 100% of the FairWay IP. (Dkt. No. 99-8, Ex. C at 64:2-23.)

B. The Loans

Between April 2006 and October 2011, Defendant made 33 loans to Plaintiff—in the form of promissory notes—to fund FairWay.5 (Dkt. No. 99-1 at ¶ 5.) The notes list Defendant as the "Purchaser" or "Lender." (Dkt. Nos. 99-1 at ¶ 5; 99-2, Ex. 1-33.) Thirty-one of the notes list Plaintiff as the "Borrower," and the other two list FairWay Pricing Technologies, LLC and FairWay International Kft, respectively.6 (Dkt. No. 99-2, Ex. 1-33.) All but one of the notes contain Plaintiff's signature. (Id. ) The notes were secured by the general assets of Plaintiff and the FairWay IP held by Urso, with the principal and interest payable by Plaintiff upon demand. (Dkt. Nos. 1-1 at ¶ 10; 29 at ¶ 10; 99-4, Ex. 44 at 7, Ex. 51 at 56, Ex. 53 at 114.) Two of the notes are governed by Delaware state law, (see Dkt. No. 99-2, Exs. 1-2); the parties do not dispute that all other notes are governed by California state law.

The total outstanding principal of the notes is approximately $ 551,433.7 The annual interest rate on the FairWay Pricing Technologies, LLC note is 8%; the FairWay International Kft note does not provide for interest. (See Dkt. No. 99-2, Ex. 1 at 9; Ex. 25 at 98.) All other notes provide for an annual interest rate of 10%.8

1. "Loan Managers"

Between June 2007 and February 2016, Plaintiff sent Defendant 19 emails attaching spreadsheets from a file entitled "Barry Forman Loan Manager"; the spreadsheets include a summary page entitled "Personal Loans – Forman to Avery," listing "Accumulated Loans with interest." (See Dkt. No. 99-3, Ex. 34-43, 45-53.) The Loan Managers list the dates of the notes, beginning with the August 2006 note,9 the principal loan amount, and the principal plus accrued interest. Beginning with the March 2008 Loan Manager, Plaintiff includes the following:

All principle and interest is due and payable on demand by Nathaniel Caleb Avery
To the extent any collateral is held by Urso Limited [also owned by Avery], that collateral is pledged as well [to the extent necessary to fully repay both principle and interest]
Signed by Nathaniel Caleb Avery both individually
and as Chairman and CEO of Urso Limited.
on behalf of Urso, Ltd.
Marina Towers, Suite 302,
Newtown Barracks,
Belize City, Belize
N. Caleb Avery
[signed under the Electronic Signatures Act of 2000 [Public Law No: 106-229) ] and legally binding upon all his assignees and heirs

(Dkt. No. 99-3, Ex. 40 at 67 (bracketed language in original).) On February 29, 2016, Plaintiff sent Defendant the last Loan Manager; it references all 33 of the notes at issue. (Dkt. No. 99-4, Ex. 53 at 113-159.) The February 2016 Loan Manager removes the language above regarding collateral held by Urso, and states, in pertinent part:

All principle and interest is due and payable on demand by Nathaniel Caleb Avery
Signed by Nathaniel Caleb Avery both individually
and as Chairman and CEO of Urso Limited.
on behalf of Urso, Ltd.
35 New Road
Belize City, Belize
**Also includes $ 100K Convertible Debt Note with FairWay Pricing Technologies which Nathaniel Caleb Avery and Urso Ltd will take personal and corporate responsibility to the extent that Note is not repaid by FairWay Pricing Technologies according to its terms.

(Id. at 114.)

2. Memorandum of Understanding

In December 7, 2011, Plaintiff emailed Defendant10 a "Memorandum of Understanding" ("MOU") reflecting a discussion between the parties to reconfigure the "payout plan" for the notes at issue so that Plaintiff 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, Plaintiff states, in pertinent part: "As you, [Defendant], 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.) The attached MOU states, in pertinent part:

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).) Defendant attests that:

[Plaintiff] 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, Plaintiff's 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.) Plaintiff's cover email also states that pursuant to "[t]he payout plan," Plaintiff would pay Defendant his balance within six months, "with a small balance by year-end 2012." (Id. ) Defendant signed and returned the MOU to Plaintiff on December 12, 2011. (Dkt. No. 99-4, Ex. 55 at 164-65.)

3. Demand Notice

On May 17, 2017, Defendant sent Plaintiff a demand letter, calling for the immediate...

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