T R Plaintiff-Appellant Defendants-Appellees.€¦ · Counsel for Total Recall Technologies Case:...

No. 17-15668

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

TOTAL RECALL TECHNOLOGIES,

Plaintiff-Appellant

v.

PALMER LUCKEY; OCULUS VR, LLC,

Defendants-Appellees.

Appeal from the United States District Court for the Northern District

of California, No. 3:15-cv-02281-WHA

OPENING BRIEF OF PLAINTIFF-APPELLANT

QUINN EMANUEL URQUHART

& SULLIVAN, LLP

Dated: July 17, 2017

Robert W. Stone

Brian C. Cannon

555 Twin Dolphin Drive, 5th Floor

Redwood City, CA 94065

650.801.5000

[email protected]

Counsel for Total Recall

Technologies

Case: 17-15668, 07/17/2017, ID: 10511931, DktEntry: 8, of 59

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RULE 26.1 CORPORATE DISCLOSURE STATEMENT

Pursuant to Fed. R. App. P. 26.1, Plaintiff-Appellant Total Recall

Technologies states that it is a general partnership formed under the laws of the

State of Hawaii.

Total Recall Technologies has no parent corporation and there is no publicly

held corporation that owns 10% or more of its stock.


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TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT ............................................................................... 1

JURISDICTIONAL STATEMENT .......................................................................... 3

ISSUES PRESENTED ............................................................................................... 3

STATEMENT OF THE CASE .................................................................................. 4

A. Igra and Seidl’s Formation of Total Recall ........................................... 4

B. Total Recall’s Contract With Palmer Luckey ....................................... 5

C. Luckey’s Breach Of The Agreement .................................................... 6

D. Igra and Seidl’s Agreement To Sue Luckey ......................................... 8

E. The District Court Proceedings ............................................................. 9

SUMMARY OF THE ARGUMENT ...................................................................... 10

STANDARD OF REVIEW ..................................................................................... 12

ARGUMENT ........................................................................................................... 12

I. THE DISTRICT COURT ERRED IN RULING ON SUMMARY

JUDGMENT THAT TOTAL RECALL WAS WITHOUT

AUTHORITY TO FILE THE LAWSUIT .................................................... 12

A. Defendants Lacked Standing To Assert The Veto Rights Of

One Partner To The Partnership Agreement ....................................... 13

1. The District Court Erroneously Allowed Defendants To

Challenge Whether the Underlying Lawsuit Was

Authorized ................................................................................. 13

a. The Only Caselaw On Point Found No Standing In

Similar Circumstances .................................................... 15


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b. The Authority Cited By The District Court Is

Inapposite ........................................................................ 17

B. Even If Defendants Had Standing To Challenge Authority, The

District Court Erred In Concluding That The Lawsuit Was Not

Authorized ........................................................................................... 20

1. Seidl and Igra Agreed In January 2015 To File This

Lawsuit ...................................................................................... 20

2. The District Court’s Reasons For Finding A Lack Of

Agreement Are Not Supported ................................................. 27

II. THE DISTRICT COURT ERRED IN RULING THAT TOTAL

RECALL WAS WITHOUT AUTHORITY TO MAINTAIN THE

LAWSUIT EVEN THOUGH TOTAL RECALL NOW CONSISTS

OF ONE MANAGING AND GENERAL PARTNER WHO HAS

AUTHORIZED THE LAWSUIT .................................................................. 31

A. Total Recall’s Suit Is Fully Authorized And Meets All The

Court’s Concerns About Authorization .............................................. 33

B. The New Structure Renders The District Court’s Requirements

Illogical ................................................................................................ 34

C. To The Extent Necessary, This Lawsuit Is Fully Ratified .................. 35

III. THE DISTRICT COURT ERRED IN DISMISSING TWO OF

TOTAL RECALL’S CLAIMS UNDER RULE 12 ...................................... 37

A. The District Court Erred In Dismissing Total Recall’s Claim

For Conversion .................................................................................... 37

B. The District Court Erred In Dismissing Total Recall’s Claim

For Breach Of The Duty Of Good Faith And Fair Dealing ................ 44

CONCLUSION ........................................................................................................ 47

REQUEST FOR ORAL ARGUMENT ................................................................... 48

STATEMENT OF RELATED CASES ................................................................... 49


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CERTIFICATE OF COMPLIANCE WITH FRAP 32(A)(7)(C) &

CIRCUIT RULE 32-1.................................................................................... 50

CERTIFICATE OF SERVICE ................................................................................ 51


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TABLE OF AUTHORITIES

Cases

Anderson v. Liberty Lobby, Inc.,

477 U.S. 242 (1986) ..................................................................................... 20, 27

Anmaco, Inc. v. Bohlken,

13 Cal. App. 4th 891 (1992) ...............................................................................18

Arizona Students’ Ass’n v. Arizona Bd. of Regents,

824 F.3d 858 (9th Cir. 2016) ..............................................................................12

Ass’n of Apartment Owners of Newtown Meadows v. Venture 15, Inc.,

167 P.3d 225 (Haw. Sup. Ct. 2007) ....................................................................14

Boucher v. Shaw,

572 F.3d 1087 (9th Cir. 2009) ..................................................................... 42, 43

Breslin v. City & Cty. of San Francisco,

146 Cal. App. 4th 1064 (2007) .................................................................... 25, 38

Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371 (1990) ..................................................................... 45, 46

Davis v. Apperience Corp., 2014 WL 5528232 (N.D. Cal. Oct. 31, 2014) ....................................................46

Delbon Radiology v. Turlock Diagnostic Center,

839 F. Supp. 1388 (E.D. Cal. 1993) .......................................... 15, 16, 17, 19, 31

Estate of Garcia-Vasquez v. County of San Diego,

No 06-1322, 2008 WL 4183913 (S.D. Cal. Sept. 9, 2008) .................................19

Foley v. Interactive Data Corp., 47 Cal. 3d 654 (1988) ............................................................................ 43, 44, 46

Fresno Motors, LLC v. Mercedes Benz USA, LLC

771 F.3d 1119 (9th Cir. 2014) ............................................................................27


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G.S. Rasmussen & Assoc. v. Kalitta Flying Serv., Inc., 958 F.2d 896 (9th Cir. 1992) ..............................................................................40

Hager v. Gibson,

108 F.3d 35 (4th Cir. 1997) ................................................................................36

Hatchwell v. Blue Shield of Cal., 198 Cal. App. 3d 1027 (1988) ............................................................................14

Lowry v. City of San Diego,

858 F.3d 1248 (9th Cir. 2017) ............................................................................12

Masson v. New Yorker Magazine, Inc., 501 U.S. 496 (1991) ............................................................................................29

Mier v. S. California Ice Co., 56 Cal. App. 512 (Cal. Ct. App. 1922) ...............................................................41

Milne Emps. Ass’n v. Sun Carriers,

960 F.2d 1401 (9th Cir. 1991) ............................................................................45

Pillsbury v. Karmgard,

22 Cal. App. 4th 743 (1994) ...............................................................................17

Puri v. Khalsa,

844 F.3d 1152 (9th Cir. 2017) ............................................................................12

Tolan v. Cotton,

134 S. Ct. 1861 (2014) ........................................................................................29

V&P Trading Co. v. United Charter, LLC,

212 Cal. App. 4th 126 (2012) ...................................................................... 18, 19

Weinberg v. Dayton Storage Co., 50 Cal. App. 2d 750 (1942) ................................................................................41

Wendell v. GlaxoSmithKline LLC,

858 F.3d 1227 (9th Cir. 2017) ............................................................................12

William O. Gilley Enters., Inc. v. Atl. Richfield Co., 588 F.3d 659 (9th Cir. 2009) ..............................................................................37


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Statutory Authorities

28 U.S.C. § 1291 ........................................................................................................ 3

28 U.S.C. § 1332 ........................................................................................................ 3

Cal. Civ. Code § 2310 ..............................................................................................36

Cal. Civ. Proc. Code § 350 ......................................................................................25

Cal. Civ. Proc. Code § 369.5 ...................................................................................19

Haw. Rev. Stat. § 425-120 .......................................................................................31

Haw. Rev. Stat. § 425-130 .......................................................................................32

Haw. Rev. Stat. § 425-139 .......................................................................................35

Haw. Rev. Stat. § 425-140 .......................................................................................35

Rules and Regulations

Fed. R. App. P. 32(a)(7)(C) .....................................................................................50

Fed. R. Civ. P. 12(b)(6) ............................................................................................12

Fed. R. Civ. P. 17(b) ................................................................................................18

Fed. R. Civ. P. 56 ....................................................................................................... 2

Additional Authorities

Alan Bromberg, Enforcement of Partnership Rights – Who Sues For The Partnership?, 70 Neb. L. Rev 1 (1991) ...............................................................19

1 Alan Bromberg & Larry Ribstein, Bromberg & Ribstein on Partnership

§5.03(c) (1st ed. 1991) .........................................................................................31

Prosser, Law of Torts (4th ed. 1971) .......................................................................43


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PRELIMINARY STATEMENT

This case involves an individual, Palmer Luckey, who contracted with a

Hawaii partnership – the plaintiff Total Recall Technologies (“Total Recall”) – to

build a head mounted display for virtual reality according to Total Recall’s

specifications and using Total Recall’s money. Despite his agreement, however,

Luckey—while simultaneously breaching his promise of exclusivity and

defrauding Total Recall—took Total Recall’s head mounted display, passed it off

as his own, and formed a company – Defendant Oculus VR – to commercialize it.

The district court below wrongly dismissed Total Recall’s case against

Luckey and Oculus VR on summary judgment because, according to the district

court, the two partners who comprised Total Recall did not properly agree to

pursue this lawsuit— thus rendering the entire lawsuit unauthorized. The district

court conceded there was no binding law that dictated this result.

The threshold error committed by the district court was allowing the

Defendants to step into the shoes of one partner and assert that partner’s veto rights.

Simply put, there was no standing for Defendants to do so. Any partnership

dispute was a matter for the partners to work out themselves—as they did in a co-

pending Hawaii state court action that is now settled.

Second, even if there was standing for Defendants to assert a lack of

authority based on Total Recall’s partnership agreement to which they were not


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parties, it was error for the district court to conclude that one of the partners

exercised a veto over the lawsuit. In fact, the opposite is true: in the co-pending

Hawaii state court action the allegedly disagreeing partner denied in his Answer

that he exercised any veto, and he never amended that pleading. Moreover, the

allegedly disagreeing partner never intervened in this lawsuit nor did he make any

legal objection to the lawsuit. Nonetheless, the district court, in violation of Fed. R.

Civ. P. 56, drew every inference in favor of the Defendants in finding that the

lawsuit was unauthorized when the facts demonstrate that the partners of Total

Recall agreed in January 2015 to file this suit to preserve the rights of the

partnership, which were violated by Luckey and Oculus.

Third, not only was this lawsuit authorized when it was filed, but that

authority was recently confirmed when, as a result of a court-supervised mediation

in Hawaii, one partner withdrew from the partnership, leaving a single partner who

has submitted declarations confirming his authority and ratification of all prior

partnership actions. Compounding its errors, however, the district court dismissed

the case even in light of these declarations.

As a result of its dismissal, the district court deprived Total Recall and its

partners of any remedy from Defendants—who have made hundreds of millions of

dollars exploiting Total Recall’s vision and equipment. The district court’s rulings

should now be reversed, the claims of conversion and breach of the duty of good


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faith and fair dealing should be reinstated, and the case remanded to address the

merits of Total Recall’s claims.

JURISDICTIONAL STATEMENT

The district court had jurisdiction under 28 U.S.C. § 1332. This Court has

jurisdiction under 28 U.S.C. § 1291. Total Recall filed a timely notice of appeal on

April 7, 2017 (ER1) from the district court’s March 9, 2017 entry of judgment.

ER6.

ISSUES PRESENTED

1. Whether the district court erred in allowing Defendants to assert a

lack of authority and ruling on summary judgment that Total Recall lacked

authority when (a) the Defendants are not parties to the partnership agreement and

(b) the two partners agreed to the action, and (c) the filing was ratified by the

partnership as a whole by the lack of any intervention in the lawsuit by any

potentially disagreeing partner.

2. Whether the district court erred in ruling that Total Recall lacked

authority to maintain the lawsuit after the Hawaii settlement agreement gave all

partnership authority to one partner to pursue the partnership’s interests against

Luckey and Oculus.


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3. Whether the district court erred in dismissing Total Recall’s claims for

(a) breach of the implied covenant of good faith and fair dealing and (b)

conversion.

STATEMENT OF THE CASE

A. Igra And Seidl’s Formation of Total Recall

Ron Igra and Thomas Seidl are inventors and entrepreneurs based in Maui,

Hawaii. In 2010, Igra and Seidl began their partnership with the aim of developing

immersive 3D technology for use in virtual reality, including cameras and head

mounted displays. ER226, ¶ 9. Igra and Seidl recognized that as of 2010, there

were no head mounted displays in the market with a price point attractive to

consumers that provided immersive stereoscopic 3D rendering and a wide field of

view such that the user could not see the edges of the screen. ER226, ¶ 10.

On March 28, 2011, Seidl and Igra entered into a written partnership

agreement to form Total Recall Technologies. ER198. In that regard, Igra agreed

to provide at least $19,000 of capital towards the partnership, and the two partners

agreed to share profits and losses. ER155-156, ¶¶ 4, 5.

After formalizing their partnership agreement, on May 27, 2011, Seidl and

Igra together filed a provisional patent application for their inventions, which the

United States Patent & Trademark Office ultimately granted as Patent No.


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9,007,430 (“System and method for creating a navigable three-dimensional virtual

reality environment having ultra-wide field of view”). ER172.

In pursuit of the partnership’s business, Seidl posted in an online forum

looking for someone to build a head mounted display to his specifications. ER162.

Defendant Palmer Luckey responded, stating “I am interested in working with you

to bring a commercial HMD to market.” ER111.

B. Total Recall’s Contract With Palmer Luckey

In early 2011, Seidl requested that Luckey build a prototype to Total

Recall’s specifications with parts paid for by the partnership. ER226, ¶ 14. Seidl

explained to Luckey that with the partnership’s initial payment to Luckey, he

expected exclusive rights to the design. Id. Luckey confirmed they were on the

“same page.” ER227, ¶ 15. Thereafter, Igra transferred money via PayPal to

Luckey for the parts for the Head Mounted Display. Id., ¶ 16.

Ron Igra requested that Seidl enter a contract with Luckey, “which would

give [Total Recall] exclusive rights to the design.” ER186. To that end, Seidl sent

a “Nondisclosure, exclusivity and payments agreement” to Luckey, which Luckey

executed on August 1, 2011 (the “Exclusivity Agreement”). The Exclusivity

Agreement required, among other things, that Luckey “keep all details including

drawings and part suppliers of the Head Mounted Display confidential and shall


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not aid any other person or entity in the design of a Head Mounted Display other

than the disclosing party.” ER204, ¶ 9.

On August 23, 2011, Luckey shipped a Head Mounted Display to Seidl

pursuant to the Exclusivity Agreement. ER228, ¶ 20. That model was later

returned to Luckey for further improvement. Id.

C. Luckey’s Breach Of The Agreement

Despite his promise of confidentiality and design exclusivity, Luckey

breached his contract and pursued the development of Total Recall’s head mounted

display designs as his own. ER228, ¶ 20. To that end, in April 2012, Luckey

registered the domain name oculusvr.com, and posted that he was developing a

head mounted display that he dubbed the “Oculus Rift,” which offered immersive

stereoscopic 3D rendering and a wide field of view all at a consumer price point—

the exact same characteristics as Total Recall’s specifications. Id., ¶¶ 23, 24.

Luckey made similar posts on an online forum that ultimately came to the attention

of noted videogame developer, John Carmack of ZeniMax. Id., ¶¶ 25, 26.

On May 17, 2012, in violation of the Exclusivity Agreement, and without

Total Recall’s knowledge or permission, Luckey provided the Oculus Rift head

mounted display to Carmack. Id., ¶ 26. At the June 5-7, 2012 Electronic

Entertainment Expo (“E3”) held in Los Angeles, California, Carmack used the Rift

to showcase a specially configured version of ZeniMax’s award winning


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videogame Doom 3. ER230, ¶ 30. Thereafter, on June 12, 2012, in another breach

of the Exclusivity Agreement with Total Recall, Luckey formed Oculus LLC to

commercialize the Rift. Id., ¶ 31.

Total Recall first became aware of Luckey’s possible breach of contract

shortly after Oculus’ Kickstarter campaign raised approximately $2.4 million

(ER0243, ¶ 35) in September 2012. ER187-188; ER199. When confronted by

Seidl about his breach in September 2012, Luckey acknowledged his obligations

under the Exclusivity Agreement but denied that he was in breach, falsely claiming:

“I should not be in breach of contract, I kept all details … of my HMD [head

mounted display] designs to myself until mid-July, which is also when I filed my

LLC. The exclusivity only lasted until July 1st I was free to design something for

myself after that exclusivity ended.” ER99; ER230,¶ 34. Seidl disagreed:

Following the letter of the contract, it was not just an

NDA but also prevented you from working on another

HMD and I know starting a company, producing a

prototype and getting a feature at E3 in June can’t mean

you started later than July 1st unless time travel is another

project you looking to fund soon on kickstarter….

Also don’t forget the first HMD you sent me did use a

single same panel and optics looked very similar to the

one I see around. Me pushing you to do wide FOV from

day one surely got you inspired on that design.

ER98. Seidl informed Igra of this confrontation. ER188.


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Seidl confronted Luckey again in December 2012: “Look cmon lets cut the

BS. Though you formed Oculus a few days after the contract ended, putting the

team together shooting the video for it, etc. etc. All happened when the contract

was happening.” ER87. At this point, Seidl believed he could have sued Luckey

“very easily.” ER202.

D. Igra And Seidl’s Agreement To Sue Luckey

In 2013 and 2014, Igra and Seidl discussed how to approach Luckey to

remedy his breach of the Exclusivity Agreement. Luckey offered to help Seidl

demonstrate Total Recall’s 3D immersive technology at the 2013 Consumer

Electronics Show (“CES”) in Las Vegas. ER91; ER202. That demonstration did

not ultimately take place. ER201. Later, in 2013, Luckey suggested that he might

help Seidl with a Kickstarter video to promote Total Recall’s 360 3D camera.

ER94. Igra believed that Luckey was stringing Total Recall along and that

“[Luckey] didn’t really have any intention of investing in a 3D 360 camera.”

ER191.

After Seidl indicated he might not cooperate with a lawsuit against Luckey

or Oculus, Igra filed suit against Seidl in the Second Circuit Court of the State of

Hawaii on December 5, 2014, No. 14-1-0699(2) (the “Hawaii Action”). ER141.

Igra alleged in paragraph 31 of his complaint that “SEIDL asserted his right to

‘veto’ any legal action by the Partnership to pursue claims against Luckey” and


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alleged in paragraph 37 of his complaint that “SEIDL has and continues to refuse

to authorize IGRA, or any other person or entity, to pursue the Partnership’s legal

claims.” ER145-146, ¶¶ 31, 37. In his Hawaii Answer, Seidl specifically denied

exercising a veto over any lawsuit against Luckey. ER132. Shortly thereafter, in

January 2015, Igra and Seidl reached agreement about their strategy to approach

Luckey, and then to file a lawsuit in order to preserve Total Recall’s rights. ER206;

ER127.

E. The District Court Proceedings

On May 20, 2015, Total Recall filed suit against Palmer Luckey and Oculus

VR, asserting inter alia, claims for breach of contract, breach of the duty of good

faith and fair dealing, and conversion. ER271 at Dkt. 1.

On January 16, 2016, on Defendants’ Rule 12 motion, the district court

dismissed (1) Total Recall’s claims for conversion with respect to the head

mounted display that Luckey kept from Total Recall, and (2) Total Recall’s claim

that Luckey breached the duty of good faith and fair dealing inherent in every

contract. ER31.

On June 16, 2016, the district court ruled on summary judgment that the

partners Seidl and Igra did not agree to the original filing of the lawsuit and

therefore the suit was unauthorized. ER29. The district court rejected Total

Recall’s argument that the Defendants did not have standing to insert themselves


10

into an alleged intra-partnership dispute and that any veto rights over the lawsuit

belonged to the partners, not the Defendants. The district court stayed the lawsuit

for six months to give counsel time to cure what the district court termed “the

authorization problem.” ER29.

On October 24, 2016, Igra and Seidl settled their Hawaii state court action

with Seidl withdrawing from the partnership, declaring that all contract rights

remain with Total Recall, and confirming that he has no individual rights in the

case against Luckey and Oculus. ER49.

Despite Igra and Seidl’s settlement, on March 9, 2017, the district court

denied Total Recall’s motion to lift the stay. ER7.

SUMMARY OF THE ARGUMENT

Under the terms of their partnership agreement, Igra and Seidl agreed that

each partner would have the right to veto certain partnership actions. Relying on

this provision, the district court made a series of errors which led to the dismissal

of the lawsuit below.

1. The district court erroneously concluded that the Defendants had

standing to assert that this lawsuit was not authorized. As a result, the district court

permitted Luckey and Oculus — strangers to the contract between Igra and

Seidl — essentially to exercise Seidl’s right to veto partnership action. That right,

which Seidl did not exercise, belonged only to the partners. Whether that veto was


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exercised, what it means, and how it may be rescinded, ratified, breached or

waived was solely a matter of internal governance of the partnership. Defendants,

as third parties to the partnership agreement, had no enforceable “veto” rights.

2. The district court compounded its legal error by wrongly concluding

that Seidl had not authorized this lawsuit to proceed despite: (1) evidence of the

partners’ agreement in January 2015 to file the underlying lawsuit so as to avoid

any statute of limitations issues, (2) no record evidence that the partners had

unanimously agreed to undo that agreement, (3) the undisputed fact that Seidl

failed to intervene in this lawsuit, and (4) Seidl’s unequivocal denial in the Hawaii

Action that he exercised any veto right. Here, the evidence of agreement to pursue

this lawsuit was overwhelming, and the district court’s failure to view that

evidence in the light most favorable to Total Recall, the non-moving party, was

error.

3. Before dismissing the entire action for lack of authority, the district

court erred under Rule 12 in narrowing Total Recall’s case by dismissing the

claims for conversion and breach of the duty of good faith and fair dealing. Total

Recall fully set forth each of the elements for these torts. The district court erred in

mandating elements that exceed what is required to prove the claims.


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STANDARD OF REVIEW

A district court’s grant of summary judgment is reviewed de novo. Wendell

v. GlaxoSmithKline LLC, 858 F.3d 1227, 1231 (9th Cir. 2017). In evaluating the

motion for summary judgment, the court “must determine whether taking the

evidence and all reasonable inferences drawn therefrom in the light most favorable

to the non-moving party, there are no genuine issues of material fact.” Lowry v.

City of San Diego, 858 F.3d 1248, 1254 (9th Cir. 2017) (internal quotation marks

and citation omitted).

A district court’s dismissal under Federal Rule of Civil Procedure 12(b)(6) is

reviewed de novo. In evaluating the motion to dismiss, the court must accept the

plaintiff’s factual allegations as true, Puri v. Khalsa, 844 F.3d 1152, 1155 (9th Cir.

2017), and “construe all inferences in the plaintiff’s favor,” Arizona Students’

Ass’n v. Arizona Bd. of Regents, 824 F.3d 858, 864 (9th Cir. 2016).

ARGUMENT

I. THE DISTRICT COURT ERRED IN RULING ON SUMMARY

JUDGMENT THAT TOTAL RECALL WAS WITHOUT

AUTHORITY TO FILE THE LAWSUIT

Under the terms of their partnership agreement, Igra and Seidl agreed that

each partner would have the right to veto certain partnership actions. In particular,

the partners agreed:

Thomas Seidl and Ron Igra has the right to Vito [sic]. This means that for

any decision regarding the company Ron Igra and Thomas Seidl have to

agree on any action with the exception of an event laid out in point 20.


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ER160, ¶ 19.1 Defendants relied on this provision of the agreement between Igra

and Seidl to argue that Total Recall’s lawsuit was unauthorized. The district court

erred in agreeing with Defendants.

A. Defendants Lacked Standing To Assert The Veto Rights Of One

Partner To The Partnership Agreement

1. The District Court Erroneously Allowed Defendants To

Challenge Whether The Underlying Lawsuit Was

Authorized

Although acknowledging that “[n]o decision from our court of appeals or

any California appellate court has directly addressed” the issue of whether a

defendant has standing to rely upon lack of authority as a defense, the district court

held that a partnership must have “one authoritative voice” and that the alleged

lack of internal agreement between the partners was “fatal” to the lawsuit. ER29.

This was error.

Any right to veto the lawsuit and challenge the authority of Total Recall to

pursue the lawsuit belonged to Igra and Seidl, the contracting parties, not to

Defendants Luckey and Oculus. If, for example, Seidl wanted to exercise a veto

right, he should have done so by intervention in this lawsuit or in a separate action

1 As referenced in the quoted Paragraph 19, Paragraph 20 of the agreement

is a buy-out provision governing what happens in the event of certain sums of

money being offered for a controlling share of the partnership. ER160, ¶ 20.

Paragraph 20 is not at issue in this lawsuit.


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such as the Hawaii Action in which he was represented by counsel. The

Defendants, by contrast, lack standing to assert such a veto.

In Hawaii,2 as in California and elsewhere, “third parties do not have

enforceable contract rights.” Ass’n of Apartment Owners of Newtown Meadows v.

Venture 15, Inc., 167 P.3d 225, 262-63 (Haw. Sup. Ct. 2007) (affirming summary

judgment that third party did not have rights to enforce a contract provision);

Hatchwell v. Blue Shield of Cal., 198 Cal. App. 3d 1027, 1034 (1988) (“Someone

who is not a party to the contract has no standing to enforce the contract or to

recover extra-contract damages for wrongful withholding of benefits to the

contracting party.”).3 Indeed, the district court acknowledged that it could locate

no authority giving Defendants standing to assert lack of authority in these

circumstances. ER26. The lack of case law is telling: it is generally presumed

that third parties do not have the right to step into the shoes of one partner and

assert his or her rights.

2 The district court correctly ruled that Hawaii law governs the partnership

agreement and internal governance, ER25, but that California law governs any

effect of that law on this case, which was filed in the Northern District of

California. Id.

3 “The exception to the general rule involves intended third-party

beneficiaries.” Ass’n of Apartment Owners, 167 P.3d at 262 (quoting Pancakes of

Hawai`i, Inc. v. Pomare Props. Corp., 85 Hawai`i 300, 309 (App. 1997))

(emphasis in original). There is no allegation that Palmer Luckey and Oculus were

ever intended to be a third party beneficiaries of the partnership agreement

between Seidl and Igra.


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a. The Only Caselaw On Point Found No Standing In

Similar Circumstances

The closest case involving an alleged intra-partnership dispute is Delbon

Radiology v. Turlock Diagnostic Center, 839 F. Supp. 1388 (E.D. Cal. 1993).

There, defendants brought a summary judgment motion on the grounds that

plaintiff, one of two general partners, did not have the management authority to

cause the partnership to bring suit under the partnership agreement. Id. at 1391.

Plaintiff challenged defendants’ standing to argue that the lawsuit was

unauthorized. Id. at 1392. The court agreed:

Third-party defendants are naturally concerned with avoiding liability, but

their only properly cognizable concern is avoiding multiple suits on the same

claims. This concern is satisfied if the first suit has preclusive effect.

Consequently there will be little or no justification for recognizing a third-

party defendant’s objection that fewer than all the partners are trying to

enforce the partnership’s claim.

Id. (citing Bromberg & Ribstein, Bromberg and Ribstein on Partnership, § 5.01(d),

at 5:7 (1st ed. 1991)).

The logic in Delbon is compelling and should control here. Defendants’

only cognizable concern is avoiding multiple suits, and here, as in Delbon, that risk

does not exist. First, Total Recall’s lawsuit precludes other suits on the same claim

under the general principle of res judicata. As a result, there is no way for

Defendants to face multiple lawsuits on the same claim because only Total Recall

may pursue that claim. Second, Seidl has withdrawn from the Total Recall


16

partnership, sworn that all “rights and interests that relate to the lawsuit” remain

with Total Recall, and confirmed that he has “no individual claims related” to the

lawsuit. ER84.

Despite the parallels between Delbon and the instant action, the district court

failed to follow its logic: that failure was error. First, the district court noted that

the partnership agreement in Delbon did not include a “veto clause” but merely

“provided that each partner had an ‘equal voice’ in the management of the

partnership.” ER27-28. This is a distinction without a difference. For both Total

Recall and the partnership in Delbon, the internal governance obligations required

agreement between the partners. The court in Delbon correctly ruled that the right

to object to a partner’s action belonged only to the disagreeing partner, not to a

third party stranger to the contract. Delbon, 839 F. Supp. at 1392.

Second, the district court attempted to distinguish Delbon by pointing out

that in Delbon there was no risk of multiple lawsuits on the same claim because the

disagreeing partner had released his claims against the defendant. ER28. That

rationale does not hold water because res judicata precludes multiple lawsuits.

Moreover, Seidl has confirmed that he has no individual claims against Defendants

as part of the settlement of the Hawaii Action. ER84. Seidl is no longer a partner

of Total Recall and has no control of this litigation against Defendants. As such,


17

Total Recall’s case is on all fours with Delbon, and it was error for the district

court to find otherwise.

b. The Authority Cited By The District Court Is

Inapposite

Although the district court found that there was “no decision” that directly

addressed the issue before it, it relied upon several cases (none of which were cited

by the parties4) to support its conclusion that Defendants could challenge Total

Recall’s authority to bring suit based on an intra-partnership dispute. ER26-27.

All of the cases, however, are inapposite, and, if anything, they demonstrate that

Defendants lacked standing to challenge Total Recall’s authority to bring suit.

For example, in Pillsbury v. Karmgard, 22 Cal. App. 4th 743 (1994), cited at

ER26, a third party (Karmgard) sued a trust administered by Wells Fargo related to

the sale of real property, and the trust prevailed at trial. Wells Fargo, as trustee,

declined to sue the third party for malicious prosecution of the failed lawsuit. The

beneficiary of the trust then sued the third party for maliciously prosecuting the

claim against the trust. The court of appeal ruled that the beneficiary lacked

standing to assert the claim that belonged to the trust and its trustee Wells Fargo.

Id. at 757. The issue in Pillsbury had nothing to do with contractual relations

between partners; instead, it addressed the question of who was the “real party in

4 Compare ER27-28 with Defendants’ briefs, ER285 at Dkt. 135 and

ER286 at Dkt. 158.


18

interest” and the question of standing with respect to the specific obligations of a

trustee in situations where it declined to file a lawsuit.

In Anmaco, Inc. v. Bohlken, 13 Cal. App. 4th 891 (1992), cited at ER26, a

50% shareholder of a company sued the other 50% shareholder in the name of the

company. The 50% shareholder defendant — who was also the CEO of the

company — did not consent to be sued by his own company. Id. at 896. The

Anmaco decision supports Total Recall’s position that the partner (or in Anmaco’s

case, the shareholder) was the only entity with the right to challenge authority. In

Anmaco, no third party attempted to step into the shoes of the shareholder

defendant; it was the defendant himself who challenged authority.

In V&P Trading Co. v. United Charter, LLC, 212 Cal. App. 4th 126, 135-36

(2012), cited at ER27, a company failed to pay its taxes, and, by statute, the

California Franchise Tax Board suspended its rights and privileges as a corporation.

Thus, when the suspended corporation filed a lawsuit, the lawsuit was void.

V&P— unlike the present case — concerns “capacity”5 to sue. There, the plaintiff,

5 Although the district court decision is directed to the question of authority,

at various times in its opinion, the court refers to both “authority” and “capacity.”

ER16. The concepts, however, are distinct and should not be conflated. “Capacity”

to sue relates to whether a plaintiff has the power to litigate in a certain court, for

example, the power to bring suit. A minor, for instance, may lack capacity. The

issue of capacity to sue is analyzed under the law of the state in which the case is

pending. Fed. R. Civ. P. 17(b). Here, there is no question that Total Recall has

capacity to sue. It is hornbook law that a partnership may sue or be sued in the


19

due to its suspended status, lacked legal capacity to bring a lawsuit. Like the other

inapposite cases cited by the district court, V&P did not involve a third party

challenging authority.

Finally, the district court relied upon Estate of Garcia-Vasquez v. County of

San Diego, No 06-1322, 2008 WL 4183913 (S.D. Cal. Sept. 9, 2008) (ER27),

another case like V&P concerning capacity not authority. In Estate of Garica-

Vasquez, the court confirmed that the plaintiff was not a legal entity with the

capacity to sue. Id.; see also, supra, note 5. This case does not support the district

court’s decision concerning standing; in fact, it does not address standing in any

way.

Accordingly, because Defendants do not have enforceable contract rights

and lack standing under the logic of Delbon — the closest case to the instant

matter— the district court erred in allowing Defendants to challenge Total Recall’s

authority to sue.

name of the partnership. Cal. Civ. Proc. Code § 369.5; see also Alan Bromberg,

Enforcement of Partnership Rights – Who Sues For The Partnership?, 70 Neb. L.

Rev 1, 29 (1991) (“Common name provisions [i.e., statutes authorizing that

partnerships may sue in the partnership name] eliminate any basis for a defendant’s

objection that the plaintiff partnership lacks capacity to sue.”). The district court's

decision, however, was directed to the “authorization problem” (ER29) and the

dismissal was based on Total Recall's alleged failure to cure its “authorization

problem.” ER7.


20

B. Even If Defendants Had Standing To Challenge Authority, The

District Court Erred In Concluding That The Lawsuit Was Not

Authorized

Even assuming, arguendo, that the Defendants had standing to challenge

Total Recall’s authority to bring the instant action, the evidence submitted in

opposition to Defendant’s Motion for Summary Judgment demonstrated that Igra

and Seidl agreed to file this lawsuit to protect Total Recall’s rights. At a minimum,

since a district court at summary judgment must view the evidence presented in the

light most favorable to the non-moving party and must draw all reasonable

inferences in its favor, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986),

it was error for the district court to conclude that it was “undisputed” that there was

no such agreement. ER16.

1. Seidl And Igra Agreed In January 2015 To File This

Lawsuit

Total Recall first became aware of Luckey’s potential breach of contract

shortly after Oculus’ Kickstarter campaign raised approximately $2.4 million

(ER262-263, ¶ 35) in September 2012. ER187-188; ER199. In that regard, Seidl

confronted Luckey on September 7, 2012, accusing him of breaching the

Exclusivity Agreement by commercializing the Oculus Rift. ER98-99.

After Luckey falsely denied that he worked on the Rift during his period of

exclusivity with Total Recall, the partners of Total Recall had to decide how to

proceed. Admittedly, the Seidl and Igra relationship was not without its ups and


21

downs. That discord was reflected in a number of emails — many of them critical

and profanity-laced — as the partners debated how best to confront Luckey in

2013 and 2014 concerning his breach and fraud (a situation made more

complicated by Luckey’s new found celebrity due to his success using Total

Recall’s technology and Oculus’s acquisition by Facebook). The partners’ internal

disputes delayed Total Recall from taking action against Luckey and Oculus.

ER189. In that vein, Igra believed that “Luckey was dragging [Seidl] along just so

that [Total Recall] wouldn’t sue and [Total Recall] would cross the statute of

limitations. . . .” ER191.

In late 2014, with Seidl continuing to express concerns about filing a lawsuit

against Luckey or Oculus, Igra filed suit against Seidl in the Second Circuit Court

of the State of Hawaii on December 5, 2014, No. 14-1-0699(2) (the “Hawaii

Action”). ER141. Igra alleged in paragraph 31 of his complaint that “SEIDL

asserted his right to ‘veto’ any legal action by the Partnership to pursue claims

against Luckey” and alleged in paragraph 37 of his complaint that “SEIDL has and

continues to refuse to authorize IGRA, or any other person or entity, to pursue the

Partnership’s legal claims.” ER146 , ¶¶ 35, 37.

On January 16, 2015, Seidl filed his Answer to Igra’s Complaint in the

Hawaii Action, denying that he had asserted his right to “veto” and denying that


22

he refused to “authorize” Igra to pursue claims against Luckey. ER136-137, ¶¶ 20,

25.

The following day, on January 17, 2015 (ER191), Igra and Seidl met and

agreed to the timeline for initiating Total Recall’s lawsuit against Luckey and

Oculus:

Q: You believe that Mr. Seidl agreed that TRT should file the lawsuit when

it did on May 20th, 2015?

A: I do.

Q: What is your basis for believing that?

A: [Seidl] and I had a meeting; we discussed it. I don’t remember exactly the

date, but it was several months before that.

And he said to me – I said to him, look, the statute of limitations on this is

coming up. And he said to me, I need another couple weeks. I’m going to

try to sell this to Facebook. I think I can make – I think they’ll want to buy it

for $600 million, and I need two weeks. Just give me two weeks before your

file.

I said, okay, and we shook hands. I gave him, I think it was, 12 weeks.

He couldn’t – he couldn’t get any offer from Facebook or Oculus or Palmer

Luckey or anything.

ER190.

Examination of the contemporaneous communications between Igra and

Seidl demonstrates their agreement and execution on that agreement— they would

contact Luckey in an effort to make a deal, and they would make sure to file any

lawsuit in time to preserve their rights.


23

On January 18, 2015, the day after their meeting, Seidl confirmed that he

would “make a letter that will cover us against [Luckey] to insure we lose no legal

rights on the case.” ER130. On January 19, 2015, Igra also summarized their

“meeting minutes” including that the partners agreed “to give Palmer 2 weeks to

provide us with his highest and best offer” and “if there is no offer from Palmer on

the table we will proceed to file our complaint as soon as possible.” ER129.

Seidl responded later that day confirming that it was imperative that they file

before any statute of limitations ran: “About the 2 weeks, lets see how fast we get

to [Z]uckerberg. If we are having one to one dialogue with Zuckerberg in 3 weeks

of video to palmer. Then we should extend to 6 weeks that gives us enough time

before statute of limitations don’t you think? . . . We can play by ear. But I

assure you. If we get nothing from Palmer prior to the end date to file. I will

file. I cant believe that you think I am that stupid.” ER128 (emphasis added).

Igra responded clarifying that the partners “agreed to wait 2 weeks for a

response and there will be no extensions unless there is an offer or a very positive

sign of getting one.” ER128. Seidl confirmed his agreement to the 2 week time

period that same day stating: “Happy with that. If no positive signs in 2 weeks of

contacting him.” ER127 (emphasis added). This agreement between the partners

was never mutually rescinded. ER206. Thereafter, the parties reached out to

Luckey as they had agreed.


24

Igra contacted Luckey first, by telephone, on February 11, 2015, and they

had a two-hour conversation. ER192. Seidl contacted Luckey next on February 24,

2015, by sending a letter (and copying Igra), stating that his “company would like

to demonstrate the footage and system to you and your company and you have

expressed an interest in the past in seeing the system and the images that it is

capable of capturing for later display.” ER125. Seidl further requested that

Luckey acknowledge certain conditions before such a demonstration could take

place:

First, I and my company have and continue to reserve all

rights that I and it have concerning claims arising from

the breach of your agreement with me dated [August 1,

2011]. While I do not expect you to agree that a breach

occurred, I and my company do expect you and your

company to agree that should I and my company can

meet with you about the camera system, such meeting

will be without waiver of any rights and claims that I

and it have against you and/or your company, all of

which rights and claims are being reserved.

Id. (emphasis added). Seidl asked Luckey to sign and return the letter agreeing to

its terms. Id. Luckey replied on February 25, 2015 stating that he could not “sign

that document” and instead sent Seidl and Igra “the standard Oculus VR NDA.”

ER117.

On February 27, 2015, Igra replied (copying Seidl) that before Total Recall

would sign the Oculus NDA, “we need you [Luckey] to sign the attached letter as

well before the demo can be presented.” ER114. That letter asked that Luckey


25

“countersign below confirming that neither the NDA nor the proposed

demonstration waives or limits Total Recall, Ron Igra, and/or Thomas Seidl’s

rights to make any claim against you or any other party, expressly including but

not limited to, any claims Total Recall may have for breach of the agreement you

entered into with the Partnership.” ER115.

On March 9, 2015, Luckey replied that “[t]he NDA I sent over should be

clear cut. I cannot sign any other amending agreements outside of it.” ER112.

Subsequently, as the Court correctly concluded, neither Luckey nor Oculus made

any proposal (or even effort) to resolve their dispute with Total Recall. ER22.

(“On March 9, Luckey refused. No further communication about the

demonstration occurred before Igra commenced this action in TRT’s name.”)

(internal cites omitted). Given Luckey’s refusal to acknowledge Total Recall’s

rights, and since much more than two weeks had passed since the partners’ January

2015 agreement, Total Recall filed suit against Luckey and Oculus on May 20,

2015. ER274.6

In his Answer filed in the Hawaii Action, Seidl denied that he vetoed this

lawsuit against Luckey and Oculus, and following his Answer, the record before

6 Any statutes of limitation were tolled when Total Recall filed this case on

May 20, 2015. See Cal. Civ. Proc. Code § 350; Breslin v. City & Cty. of San

Francisco, 146 Cal. App. 4th 1064, 1082 n.18 (2007) (“An action is commenced

for statute of limitations purposes when a complaint is filed.”).


26

the district court demonstrated that he exercised no such veto. ER206. Seidl never

amended his Answer nor did he file any counterclaims against Igra in the Hawaii

Action seeking to enjoin Total Recall’s lawsuit or otherwise. ER132. Nor did

Seidl seek to intervene in this lawsuit.

In sum, when viewed in the light most favorable to the non-moving party,

the evidence demonstrated that: (1) Seidl denied in the Hawaii Action that he had

ever vetoed any action against Luckey and Oculus, (2) Igra and Seidl agreed in

January 2015 to file this lawsuit so as to avoid any statute of limitations issues, (3)

the partners never agreed to rescind that agreement, (4) Seidl asserted no veto after

the January 2015 agreement, (5) Luckey and Oculus failed to reach any resolution

with Total Recall before the lawsuit was filed, (6) Seidl never intervened in this

lawsuit, and (7) Seidl never sought to amend his Answer nor did he counterclaim

for any relief in the Hawaii Action. The evidence submitted in opposition to

Defendants’ Motion for Summary Judgment demonstrated conclusively that the

parties agreed to pursue this lawsuit to protect Total Recall’s rights and that Seidl

took no steps to stop the lawsuit. If Seidl had wanted to stop the lawsuit, it was his

burden to do so— but he did nothing.7 Accordingly, based on the foregoing, the

district court should have denied Defendants’ Motion for Summary Judgment.

7 As discussed further in Section II.C., infra, under well-settled law, Seidl’s

inaction amounts to ratification of the actions of the partnership.


27

2. The District Court’s Reasons For Finding A Lack Of

Agreement Are Not Supported

Despite substantial and compelling evidence of Igra and Seidl’s January

2015 agreement that Total Recall would pursue this lawsuit to preserve its claims,

the district court found that it was “undisputed” that there was no such agreement.

This conclusion was error.

The district court’s finding demonstrates that it did not view the evidence

presented in the light most favorable to the opposing party as is required by

controlling Supreme Court and Ninth Circuit authority. As has long been the law,

“[t]he evidence of the non-movant is to be believed, and all justifiable inferences

are to be drawn in his favor.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255

(1986). And even when the basic facts are undisputed, if reasonable minds could

differ on the inferences to be drawn from those facts, summary judgment should be

denied. Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125

(9th Cir. 2014) (summary judgment improper “where divergent ultimate inferences

may reasonably be drawn from the undisputed facts”).

Instead, contrary to law, the district court drew inference after inference in

favor of Defendants — the moving parties. The record is replete with examples.

For instance, the district court appears to have ignored Seidl’s Answer in the

Hawaii Action where he expressly denied exercising a veto over the lawsuit

against Luckey and Oculus, and Igra’s declaration in which he claimed that Seidl


28

asserted no veto after the date of his Answer. ER205. Seidl’s Answer (and his

failure to amend same) should have been considered the definitive statement from

Seidl concerning his legal position about this lawsuit.

Similarly, although the district court acknowledged that Igra and Seidl

agreed on a strategy to reach out to Luckey (ER24) the district court found that the

partners’ “email exchange remained subject to certain conditions,” one of which

was that the lawsuit would commence if discussions with Luckey produced “no

positive signs.” Id. According to the district court, there were such “positive signs”

from Luckey, and, therefore, the lawsuit was unauthorized. Id. But the district

court inferred what it believed to be “positive signs” when in fact Luckey refused

to acknowledge Total Recall’s potential claims, rejected the partners’ proposed

non-disclosure agreement and reservation of rights, and neither Luckey nor Oculus

made any efforts to resolve their dispute with Total Recall before this lawsuit was

initiated.

A reasonable juror could just as easily infer that Luckey was continuing his

strategy of stringing Total Recall along until any statute of limitations expired. In

this vein, the district court appears to have all but ignored Seidl’s email

admonishing Igra that “[i]f we getting nothing from Palmer prior to the end date to

file. I will file. I cant believe you think I am that stupid.” ER128 (emphasis

added).


29

A reasonable inference from this exchange is that Seidl’s ultimate goal —

the meeting of the minds between him and Igra — was that no matter what strategy

steps may be contemplated, the ultimate goal was to avoid losing Total Recall’s

rights. It was error for the district court to draw inferences in Defendants’ favor

and to rule that Seidl’s statements reflected an ongoing objection to the lawsuit and

somehow reflected an agreement to let Total Recall’s rights lapse — the latter

conclusion being completely unsupported by any evidence in the record. Where,

as here, words or conduct may be interpreted in several ways, one supporting the

motion for summary judgment and one controverting it, summary judgment must

be denied. Tolan v. Cotton, 134 S. Ct. 1861, 1866 (2014) (holding that by “failing

to credit evidence that contradicted some of its key factual conclusions, the [lower]

court improperly ‘weigh[ed] the evidence’ and resolved disputed issues in favor of

the moving party . . . .”); Masson v. New Yorker Magazine, Inc., 501 U.S. 496,

520-21 (1991).

The district court once again impermissibly drew inferences in favor of

Defendants when it considered a February 2015 email from Seidl to Igra

suggesting that he delay filing suit in order to give Total Recall more time to make

a deal. ER21. Nothing in this exchange suggested that Seidl was saying that the

lawsuit should not be filed before the possible running of the statute of limitations.

That ultimate deadline and agreement remained in place. There is absolutely no


30

evidence that Seidl intended to abandon Total Recall’s claims against Defendants.

And even if the email exchange in February can be construed as an objection to

filing the suit — it was not — the partners’ January 2015 agreement to file suit was

made unanimously and needed to be rescinded unanimously pursuant to the terms

of the partnership agreement.

Finally, the district court relied on the April 5, 2016 deposition testimony of

Seidl, in which Seidl stated that he did not consider Quinn Emanuel, Total Recall’s

attorneys, to be “his” attorneys, (ER198), and that he did not agree that Total

Recall could file the complaint against Luckey. ER154; see ER22. This after-the-

fact deposition testimony, which contradicts the contemporaneous exchanges

between Seidl and Igra, Seidl’s judicial admissions and litigation conduct (or lack

thereof), as well as Igra’s deposition and declaration, occurred more than 11

months after the complaint was filed and is open to interpretation, for example,

Seidl may have been referring to the specific contents of the complaint against

Luckey, not the filing of a complaint to preserve the partnership’s rights. It simply

cannot be disputed that Seidl took no steps prior (or after) the deposition to halt

this lawsuit.8

8 Palmer Luckey attended Seidl’s deposition (ER195) and statements made

after-the-fact ought to be considered in that light.


31

When viewed in the light most favorable to Total Recall and where all

reasonable inferences are drawn in its favor— rather than Defendants’— (as they

must be), the district court’s error in finding that it was undisputed as a matter of

law that there was no agreement to file the instant lawsuit is manifest. The district

court erred in not focusing on the parties’ January 2015 agreement; by not

acknowledging that Igra and Seidl unambiguously agreed that a filing was

necessary before any statute of limitations might expire; and by ignoring Seidl’s

failure to intervene in favor of his testimony nearly a year after the fact that

contradicted his contemporaneous statements. Instead, by drawing all inferences

in favor of the moving party, the district court committed error. Accordingly, its

decision should be overturned.

II. THE DISTRICT COURT ERRED IN RULING THAT TOTAL

RECALL WAS WITHOUT AUTHORITY TO MAINTAIN THE

LAWSUIT EVEN THOUGH TOTAL RECALL NOW CONSISTS OF

ONE MANAGING AND GENERAL PARTNER WHO HAS

AUTHORIZED THE LAWSUIT

This lawsuit was authorized when it was first filed — both by agreement of

the partners and because each general partner has the right to enforce contract

rights as “ordinary” matters.9 ER206. As part of its summary judgment order,

however, the district court ordered that Total Recall had six months to cure the

9 See Haw. Rev. Stat. § 425-120; Delbon, 839 F.Supp. at 1392 (citing 1

Alan Bromberg & Larry Ribstein, Bromberg & Ribstein on Partnership §5.03(c) at

5:20-21 (1st ed. 1991)).


32

problem of the partnership not speaking with “one authoritative voice” by setting

forth a series of conditions that Total Recall must satisfy. The district court

requested declarations from each of the two Total Recall partners (1) “stating that

both authorize and agree to the maintenance” of this lawsuit, (2) that “both ratify

all actions taken herein so far on behalf of Total Recall” and (3) that “both consent

to continued prosecution of the case by the law firm of Quinn Emanuel,” or a final

order from the Hawaii court to the same effect. ER29-30. As set forth above,

these conditions should not have been imposed on Total Recall. Nonetheless, Igra

and Seidl resolved the Hawaii Action in a way that exceeded the conditions set out

by the district court.

On October 14, 2016, Igra and Seidl engaged in a court-ordered mediation

before Second Circuit (Maui) Judge Rhonda Loo and reached a comprehensive

settlement that divided their partnership assets. Judge Loo’s resolution was a

creative and effective resolution of the issues, and it was error for the district court

below to reject it and insist upon dismissing the Total Recall lawsuit.

In particular, under Judge Loo’s supervision, the parties agreed, inter alia,

that: (1) Seidl withdrew from the partnership pursuant to Haw. Rev. Stat. § 425-

130, effective October 14, 2016 (ER50); (2) all rights or other interests that relate

to the instant lawsuit remained the property of Total Recall, and Igra, through Total

Recall, retained control thereof (ER50-51); (3) Seidl agreed to receive thirty (30)


33

percent of any net monetary award, monetary settlement, or other recovery

resulting from this lawsuit, if any (ER51); and (4) Igra agreed to indemnify Seidl

for any fees and costs arising out of this lawsuit (ER53).

Following the settlement, Total Recall submitted declarations to the district

court confirming the settlement, explaining that Igra has complete authority and

control to prosecute this lawsuit, and confirming that Seidl has no individual

claims in the case relating to Total Recall’s exclusivity contract with Luckey.

Seidl expressly acknowledged: “I have no right to control any aspect of the

California Lawsuit and no right to veto the California Lawsuit.” ER84.

A. Total Recall’s Suit Is Fully Authorized And Meets All The

Court’s Concerns About Authorization

There can be no dispute that Total Recall is fully authorized to maintain this

lawsuit. There is one managing partner — Ron Igra — and he authorizes the

lawsuit. Seidl has withdrawn and has no veto power. The district court was

simply without legal basis to dismiss the lawsuit after Total Recall reorganized

itself. Thus, even if Defendants had standing to challenge Total Recall’s authority

to file suit, and even if an intra-partnership dispute deprived Total Recall of

authority, there is no longer any impediment to this lawsuit proceeding. Indeed,

the partners’ settlement of the Second Hawaii Action should have eliminated all of

the issues raised by the district court.


34

In particular, the district court stated that “the partnership must have one

authoritative voice.” ER29. That is now without question: only Ron Igra speaks

for the partnership. Seidl has confirmed that he has “no individual claims related

to the California Lawsuit and no right to seek judicial supervision or control over

the California Lawsuit.” ER84. Similarly, the district court expressed concern that

“[t]hose outside the partnership have a legitimate need to be able to know who can

act for and bind the partnership” and “a legitimate need to know as well who has

authority to settle a case.” ER26-27. That concern has also been addressed

because only Igra can speak for the partnership regarding this lawsuit.

B. The New Structure Renders The District Court’s Requirements

Illogical

The district court, however, was not satisfied with Total Recall’s state court

supervised reorganization. ER7. The district court dismissed the lawsuit because

Total Recall had not followed the exact conditions set by the district court —

namely, declarations and ratifications from each of the partners. Id. However,

those conditions presumed that the partnership would remain in the same form as

before. Now that Total Recall has a new structure, the district court’s request for

two mirror declarations from Igra and Seidl is neither logical nor appropriate.

Because Seidl is no longer a partner, he cannot authorize the continued

prosecution of this lawsuit. That power belongs to Igra alone, and Igra has

exercised it. The district court’s position dismissing the case is tantamount to a


35

claim that it can order Total Recall remain as a two person partnership, thereby

necessitating declarations from both partners.

There is no such law: Hawaii partnership law explicitly allows the sole

remaining partner to continue the partnership in order to wind up the business. See

Haw. Rev. Stat. §§ 425-139, 425-140. Ron Igra, the sole remaining partner, has

fully authorized Total Recall to prosecute this lawsuit, has agreed to the

maintenance of the action, has agreed to Quinn Emanuel serving as counsel, and

has ratified all actions of the partnership regarding this lawsuit. ER82, ¶¶ 5-8.

Seidl, for his part as the withdrawn partner, confirms that he has no control over

the lawsuit, no right to veto, no individual claims related to the lawsuit, and

understands that Igra intends to continue to pursue the lawsuit through Total Recall.

ER84. There can be no question that this lawsuit is therefore fully authorized—

exactly the subject of the original summary judgment motion.

C. To The Extent Necessary, This Lawsuit Is Fully Ratified

To the extent that the district court dismissed the case because Seidl failed to

ratify the lawsuit by declaration following settlement, that decision also constituted

error. ER12. As a threshold matter, Total Recall and its sole remaining partner

have ratified the case and — through agreement with the former partner — taken

on full responsibility for all aspects of this lawsuit. For all practical purposes, that


36

ratification establishes that the plaintiff has authority to prosecute this action, the

only respect in which ratification would be germane to this case.

“Ratification” is not something Defendants have prayed for or otherwise

sought. Put differently, no case law or other legal authority has been cited that

would give Defendants or the court a right to ratification from a former partner,

particularly where the remaining partner has expressly authorized and ratified the

prosecution of the action.

The foregoing is sufficient to resolve the “ratification” issue such that the

Court need not decide whether Seidl’s conduct during the pendency of this case

amounted to ratification. However, should that be considered, the record is

unambiguous: with full knowledge of the existence of the lawsuit, Seidl took no

action to stop it. That is classic ratification and under principles of ratification, he

is bound by this case. See, e.g., Hager v. Gibson, 108 F.3d 35 (4th Cir. 1997)

(failure of non-consenting shareholder properly to object or otherwise intervene in

proceedings results in ratification of proceedings); Cal. Civ. Code § 2310 (“A

ratification can be made . . . by accepting or retaining the benefit of the act, with

notice thereof.”).

Ratification is a different issue from authority as the case law establishes.

Here, there can be no question that Seidl had notice of the lawsuit and that he never

intervened in this case, nor filed any motion in Hawaii to stop this action, nor any


37

counterclaims. See ER80. Accordingly, this lawsuit was properly filed at the

outset, and continued to be properly filed after Seidl withdrew as a partner. By

dismissing Total Recall’s case even in light of the reorganization, the district court

deprived both Total Recall and its remaining partner Ron Igra of their day in court

to prove Luckey’s and Oculus’ breach and liability.

III. THE DISTRICT COURT ERRED IN DISMISSING TWO OF TOTAL

RECALL’S CLAIMS UNDER RULE 12

Before dismissing the entire action for lack of authority, the district court

erred under Rule 12 in narrowing Total Recall’s case by dismissing the claims that

(1) Luckey committed conversion with respect to Total Recall’s Head Mounted

Display and (2) Luckey breached the implied duty of good faith and fair dealing.

See ER40-41, ER43. At the pleading stage, plaintiff’s allegations must be accepted

as true, William O. Gilley Enters., Inc. v. Atl. Richfield Co., 588 F.3d 659, 662 (9th

Cir. 2009), —and in this case Total Recall more than made out a claim for

conversion and a breach of the covenant of good faith and fair dealing.

A. The District Court Erred In Dismissing Total Recall’s Claim For

Conversion

Total Recall’s conversion claim is based upon Palmer Luckey’s misuse of

tangible personal property — the Head Mounted Display that belonged to Total

Recall, which Luckey renamed the Rift and sent to third party videogame

developer, John Carmack. The district court erred in requiring as an element of


38

conversion that Total Recall formally demand the return of its head mounted

display. ER43. Such a formality is not an element of the tort, and the district court

did not cite any case law supporting its requirement. It is inconsistent with the tort

to place a burden on the party dispossessed of its property to—in all instances—

take a futile step to demand return of its property when that property has already

been misused.

Total Recall’s First Amended Complaint (ER236) and Proposed Second

Amended Complaint (ER207)10 alleged that on “August 23, 2011, Luckey shipped

a Head Mounted Display to Seidl pursuant to the Agreement.” ER211, ¶ 20. “The

Head Mounted Display was later returned to Luckey for further improvement” but

“was never returned to the Partnership.” Id. Furthermore, Total Recall alleged

that “Luckey passed off the Head Mounted Display as his own” and “Luckey

called the Partnership’s Head Mounted Display the Oculus Rift.” Id., ¶ 22. As

10 Defendants filed a Rule 12 motion to dismiss the First Amended

Complaint, including the claims for conversion and breach of the implied duty of

good faith and fair dealing. ER278, Dkt. 48. After Total Recall filed a motion

seeking relief from Defendants' discovery abuses, the district court held in

abeyance the motion to dismiss. ER279, Dkt. 60. Based upon initial discovery

then provided by Defendants, Total Recall moved to add additional details in a

second amended complaint. Id., Dkt. 69. The district court disposed of the motion

to dismiss and motion to amend in a single order. ER31. The claims for

conversion and breach of the duty of good faith and fair dealing were properly pled

in both the First Amended Complaint (ER236) and the proposed Second Amended

Complaint. ER224.


39

alleged, in violation of the Exclusivity Agreement, on May 17, 2012, Luckey

proceeded to send the Rift to videogame developer John Carmack of ZeniMax.

ER213, ¶ 28. As set forth in Total Recall’s proposed Second Amended Complaint,

even though Luckey had already sent the Rift to the John Carmack and begun the

process of forming his own company, “[o]n May 21, 2012, Luckey told Seidl that

he was ‘going to open-source’ the Rift design because ‘[a] few VR nerds want to

make it their own’ and it ‘seem[ed] like good karma points.” ER213, ¶ 31. There

was no “open source” and no “VR nerds” — Luckey was taking the Head Mounted

Display and converting it for his own purposes to coopt an opportunity that should

have been Total Recall’s.

In June 2012, Luckey and others — still within the one year period of

exclusivity — formed Oculus VR in order to commercialize the Rift. ER214, ¶¶

35-36. Thereafter, “[i]n September 2012, Seidl wrote to Luckey claiming that

Luckey was in breach of the parties’ Agreement.” Id., ¶ 38. Accordingly, Total

Recall set forth a claim for conversion as against all Defendants. ER216-217, ¶¶

49-54. Total Recall alleged that Defendants knowingly converted to Defendants’

own use the tangible property owned by Total Recall, namely “at least one

prototype virtual reality Head Mounted Display (and associated components and

materials) built for and in conjunction with TRT.” ER216, ¶ 50. It was error for

the district court to dismiss this claim under Rule 12(b)(6).


40

This Court has set forth the elements for conversion: Total Recall must

allege that (1) it owned or had a right to possess a specific item of property; (2)

Defendants wrongfully dispossessed Total Recall of that property; and (3) Total

Recall was damaged as a result. G.S. Rasmussen & Assoc. v. Kalitta Flying Serv.,

Inc., 958 F.2d 896, 906 (9th Cir. 1992). Total Recall has met each of those

elements in its pleading: First, Total Recall owned the Head Mounted Display; it

was built with its money to its specifications. Second, Luckey wrongfully

dispossessed Total Recall of its HMD by claiming it as his own, lying to Seidl by

saying he wanted to open source the design for “VR nerds” and secretly sending

the HMD to a videogame developer and allowing him to present it at a trade

show—all of which led to the formation of Oculus VR to commercialize the Rift.

Third, Total Recall was damaged (ER217) both by the loss of its physical property

and the loss of opportunity the property represented; the Head Mounted Display

was worth more than the sum of its parts — it was the right device at the right time

and the result of Total Recall’s vision that the world was ready for virtual reality.

The district court, however, dismissed Total Recall’s conversion claim

pursuant to Defendants’ Rule 12 motion. ER43. This was error. The district court

conceded that “[a] ‘request for return’ is not an element of a conversion claim” (id.)

yet nevertheless ruled that the lack of such a request “is fatal to Total Recall’s

claim here, inasmuch as it defeats the second element — wrongful dispossession.”


41

Id. Thus, the district court has inserted into the tort of conversion an additional

element that wrongful possession requires a formal request for return of property,

even if futile. This is error for several reasons.

First, the tort simply does not place a burden on the aggrieved party to

formally request the return of the property. The Head Mounted Display was

misused — Luckey knew it was misused and that he was dispossessing Total

Recall because he lied about open sourcing the design when in fact he was sending

it to a videogame developer and forming his own company to commercialize it.

The focus of the tort is on the wrongful behavior of the defendant — not on any

formal steps the plaintiff must conduct.11

It may be that Defendants could argue on the merits that the lack of a formal

request for return of property demonstrates that the possession was not wrongful or

11 “The rule is that, where there has been an actual conversion, a demand

upon the defendant before the institution of the action of trover is not necessary.

For, since demand and refusal do not of themselves constitute conversion, but are

only evidence from which conversion in certain cases may be found (Steele v.

Mariscano, 102 Cal. 666 (1894)), the conversion may be established by proof of

other acts on the part of the defendant, such, for instance, as selling and delivering

the property to some third person in defiance of the rights of the true owner.” Mier

v. S. California Ice Co., 56 Cal. App. 512, 518 (Cal. Ct. App. 1922). “It is well-

settled in this state that there is no necessity for a demand where the acts of the

defendant in relation to the property show a conversion, or where, under the facts,

a demand would be futile. . . . Each case must turn upon its own facts.” Weinberg v.

Dayton Storage Co., 50 Cal. App. 2d 750, 757–58 (1942) (collecting authority).


42

that there was some form of consent, but that is a question for the fact finder to

decide. Indeed, factual disputes are “not properly resolved on a motion to dismiss.”

Boucher v. Shaw, 572 F.3d 1087, 1092 (9th Cir. 2009). A request to return is not

an element of the tort, nor should it be.

Second, the facts of this case underscore that a formal request should not be

part of the tort. Here, a formal request would have been futile — by the time Total

Recall realized that the Head Mounted Display had been misused it had already

been shipped to Carmack and presented at the trade show as belonging to Palmer

Luckey. The property was gone — in one sense, consumed like a bottle of wine or

cashed in like a lottery ticket. The timing was critical: Total Recall saw the

market opportunity, knew what could be built using off the shelf components, and

funded the Head Mounted Display. When Palmer Luckey took Total Recall’s

Head Mounted Display and used it for his own purposes, he misused that property

and converted it for himself. This case ought to represent the prototypical case for

conversion.

The district court did not cite any case law for its conclusion that the tort

requires a formal request for return. ER43. However, in support of its conclusion,

the district court pointed to a clause in Paragraph 3 the Exclusivity Agreement that,

according to the district court in selective quotation, provided that “Seidl’s

agreement Luckey only entitled him to the return of ‘tangible items in [Luckey’s]


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possession . . . if Disclosing Party requests it in writing.” Id. It was error for the

district court to point to the parties’ contract as proof that conversion requires a

formal request for return. As a threshold matter, the portion of the contract cited

by the district court has to do with “Confidential Information” and the request is

only for material related to Confidential Information as the full quote provides:

Receiving Party shall return to Disclosing Party any and all records, notes,

and other written, printed, or tangible materials in its possession pertaining

to Confidential Information immediately if Disclosing Party requests it in

writing.

ER203, ¶ 3 The provision simply has nothing to do with the conversion of

personal property. The provision does not provide that a party can misuse or

convert personal property as long as the aggrieved party does not ask for it back in

writing. The opposite is true: the provision is a protection governing confidential

information and obligates a return of confidential information should one party

request.

Not only is the contract clause governing confidential information inapposite

for conversion, but the obligation is contractual in nature. Conversion is a tort.

California distinguishes the two: “Whereas contract actions are created to enforce

the intentions of the parties to the agreement, tort law is primarily designed to

vindicate ‘social policy.’” Foley v. Interactive Data Corp., 47 Cal. 3d 654, 683

(1988) (quoting (Prosser, Law of Torts (4th ed. 1971) p. 613.)). Thus, Total Recall

has properly pled that Luckey committed the tort of conversion by wrongfully


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misusing and converting Total Recall’s Head Mounted Display for his own

purposes and thereby damaging Total Recall.

B. The District Court Erred In Dismissing Total Recall’s Claim For

Breach Of The Duty Of Good Faith And Fair Dealing

In its First Amended Complaint (ER236) and proposed Second Amended

Complaint (ER207) Total Recall alleged a breach of the duty of good faith and fair

dealing. ER244, ¶¶ 42-44; ER216, ¶¶ 46-48. Total Recall alleged this claim in

addition to a claim for breach of contract. The district court, however, dismissed

this claim as “duplicative of” and “subsumed into” the claim for breach of contract.

ER40-41.

The district court erred because the duty of good faith and fair dealing exists

as a separate cause of action. In a case involving both contract breach and breach

of the duty of good faith and fair dealing, the California Supreme Court recognized:

“Every contract imposes upon each party a duty of good faith and fair dealing in its

performance and its enforcement.” Foley, 47 Cal. 3d at 683 (quoting (Rest. 2d

Contracts, § 205)). The covenant acts as a sort of “safety valve” and “[t]he precise

nature and extent of the duty imposed by such an implied promise will depend on

the contractual purposes.” Foley, 47 Cal. 3d at 684 (citation omitted).

A claim for breach of the implied covenant is “based on the existence of an

underlying contractual relationship, and the essence of the covenant is that neither

party to the contract will do anything which would deprive the other of the benefits


45

of the contract.” Milne Emps. Ass’n v. Sun Carriers, 960 F.2d 1401, 1411 (9th Cir.

1991). Here, the express terms of the Exclusivity Agreement required that Luckey

refrain from disclosing any details concerning Total Recall’s Head Mounted

Display and refrain from aiding anyone other than Total Recall in designing a head

mounted display. ER239-240, ¶ 19. Total Recall alleges that Luckey breached the

implied duty of good faith and fair dealing by intentionally frustrating those two

purposes of the Agreement. ER244, ¶ 43.

The claim is not superfluous to the contract claims. The breach of contract

claim is, of course, based on breach of a specific contractual obligation. By

contrast, in support of the implied covenant claim, the First Amended Complaint

(and proposed Second Amended Complaint) alleges that Luckey refused to

discharge contractual responsibilities—not by honest mistake, but by deliberate

act. Whether or not Luckey also breached the contract, his refusal to comply

disappointed Total Recall’s reasonable expectations under the Agreement and

deprived Total Recall of the benefits of the Agreement.

This distinction was drawn in Careau & Co. v. Sec. Pac. Bus. Credit, Inc.,

222 Cal. App. 3d 1371, 1394-95 (1990). There, the Court found that a claim for

breach of implied covenant is not duplicative of a contract claim when the

complaint alleges that:

the conduct of the defendant, whether or not it also constitutes a breach of a

consensual contract term, demonstrates a failure or refusal to discharge


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contractual responsibilities, prompted not by an honest mistake, bad

judgment or negligence but rather by a conscious and deliberate act, which

unfairly frustrates the agreed common purposes and disappoints the

reasonable expectations of the other party thereby depriving that party of the

benefits of the agreement.

Id. at 1395. Another case reiterated that distinction in Davis v. Apperience Corp.,

2014 WL 5528232 (N.D. Cal. Oct. 31, 2014), stating that “the allegations in a

breach of implied covenant claim” must “go beyond the statement of a mere

contract breach.” Id. at *6 (quoting Careau, 222 Cal. App. 3d at 1395).

The First Amended Complaint and Proposed Second Amended Complaint

go beyond the contract claim and allege that Luckey frustrated the purpose of the

Agreement by falsely promising to “discharge [his] contractual” responsibilities.

Careau, 222 Cal. App. 3d at 1395. This includes, for instance, “refrain[ing] from

aiding any other person or entity in the design of a Head Mounted Display other

than the Partnership.” ER244, ¶ 43. Indeed, Total Recall explicitly pled that

Luckey falsely promised to do so. ER245, ¶ 43.

The district court erred in rejecting the claim for breach of the implied

covenant because the district court asserted that the purpose of the claim was to

“obtain a tort recovery.” ER40. But breach of the covenant leads to contract

damages, not tort damages. Foley, 47 Cal. 3d. at 684. Thus, the premise of the

district court’s position was error. Total Recall was entitled to allege that Luckey

breached the contract he had with Total Recall, and also that Luckey breached the


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implied covenant of good faith and fair dealing by frustrating the purpose of the

contract. These are separate claims, and Total Recall should be allowed to proceed

under both theories.

CONCLUSION

For the foregoing reasons, judgment should be reversed and the case

remanded for further proceedings.

DATED: July 17, 2017 Respectfully submitted,

By: s/ Brian C. Cannon

BRIAN C. CANNON

Counsel for Appellant


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REQUEST FOR ORAL ARGUMENT

Plaintiff-Appellant respectfully requests that this Court hear oral argument in

this case.


49

STATEMENT OF RELATED CASES

Pursuant to Circuit Rule 28-2.6, Plaintiff-Appellant states that it is not aware

of any related cases pending in this Court.


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CERTIFICATE OF SERVICE

I, Brian C. Cannon, a member of the Bar of this Court, hereby certify that on

July 17, 2017, I electronically filed the foregoing “Opening Brief of Plaintiff-

Appellant” with the Clerk of the Court for the United States Court of Appeals for

the Ninth Circuit by using the appellate CM/ECF system. I certify that all

participants in the case are registered CM/ECF users and that service will be

accomplished by the appellate CM/ECF system.

s/ Brian C. Cannon


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