Court of Appeal:
2021 Lawsuit Based on Conduct in 2009 Might Be Viable
Presiding Justice Stratton Says Equitable Tolling of California Statutes of Limitation Might Save Causes of Action
Based on Institution of Pre-Trial Discovery Procedure in 2013 in France; Delayed-Discovery Rule Is Applied
By a MetNews Staff Writer
The Court of Appeal for this district has ordered reinstatement of a complaint for fraud and breach of fiduciary duty brought by a Bay Area software company against what was previously known as Technicolor S.A., creating a prospect that there will yet be a trial on claims previously dismissed in both civil and criminal proceedings in France and in an action in the U.S. District Court for the Northern District of California.
Presiding Justice Maria E. Stratton of Div. Eight commented at the outset of the opinion, filed Wednesday, that the decision “seems destined for the pages of a civil procedure casebook.”
Technicolor, founded in Boston in 1914, became part of a French conglomerate in 2001, and it was in France that Metabyte, Inc. instituted a civil proceeding on April 29, 2013. The issue in the appeal before Div. Eight was whether the bringing of that proceeding created an equitable tolling of California’s statutes of limitations and the answer was a “maybe,” with the court reversing a judgment of dismissal following the sustaining of a demurrer without leave to amend.
Equitable tolling, if available, would have to be combined with application of the delayed-discovery rule to save causes of action which the trial court determined to be time-barred. Stratton said that allegations of the complaint, which must be taken as true at the pleading stage, show that the rule must presently be applied.
Metabyte’s contention is that Technicolor (now known as “Vantiva”), in the course of liquidating MNI, a company that was originally a Metabyte subsidiary but in which Technicolor had gained a controlling interest, rigged an auction in 2009, with patents that were “probably” worth more than $16 million being purchased for $1 million by a Technicolor subsidiary. As a result, Metabyte—which had retained a considerable amount of its stock in MNI—claims that it was cheated out of its fair share of the true value of those patents.
The proceeding it brought in 2013, pursuant to Article 145 of the French Code of Civil Procedure, is a precursor to the filing of a lawsuit, entailing the appointment of a bailiff to show up, unannounced, at the business of the future defendant and seizing documents that might be of evidentiary value. Technicolor’s headquarters was raided.
Metabyte did sue and also brought about a criminal proceeding. On Aug, 12, 2019, an appellate court in France determined “that the matter belonged in courts in the United States.”
On Aug. 10, 2020, Metabyte filed its federal lawsuit, setting forth claims under both federal and California law. District Court Judge Charles R. Breyer on April 30, 2021, granted a motion for dismissal (the federal analogue of a demurrer), without prejudice, rejecting Metabyte’s contention that equitable tolling applies based on institution of the Article 145 proceeding, and ruling that it appeared the claims are time-barred.
Rather than amending, Metabyte on June 11, 2021, voluntarily dismissed the federal action.
Superior Court Lawsuit
It filed a lawsuit six days later in the Los Angeles Superior Court, alleging fraud, intentional interference with contractual relations claims, violation of the Unfair Competition Law, breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing. Judge Daniel S. Murphy on Nov. 22, 2021, sustained a demurrer without leave to amend, explaining:
“Equitable tolling applies when a plaintiff pursues a legal remedy that is ‘designed to lessen the extent of his injuries or damage.’…Here, by Plaintiff’s own characterization, the purpose of the Article 145 proceedings in France was ‘to obtain authorization to seize relevant paper and electronic documents related to METABYTE’s claims....’ ”
“As a result of the Article 145 filing, a bailiff indeed seized some of the documents sought. (Ibid.) Plaintiff does not allege or explain how the seizure order pursuant to Article 145 is a legal remedy ‘designed to lessen the extent of his injuries or damage.’…The injury and damage claimed here is the economic loss suffered when Defendant allegedly rigged an auction to sell off MNI’s assets at a discount. A preliminary discovery procedure designed to prevent the destruction of evidence…does not address or lessen this injury.”
Disagreeing with the view expressed by Breyer and Murphy that equitable tolling is not available, Stratton declared that it might be—but not under the facts that have been pled, so far.
Murphy had cited a 1979 California Supreme Court case. Stratton said he “overlooked more recent cases.”
She drew attention to the state high court’s 2017 decision in J.M. v. Huntington Beach Union High School District. In its opinion, Stratton said, “the California Supreme Court…made clear that ‘pursuit of an alternate remedy is not always required for equitable tolling. The doctrine is applied flexibly to ‘ensure fundamental practicality and fairness.’ ”
The presiding justice quoted the Supreme Court as saying in its 2020 decision in Saint Francis Memorial Hospital v. State Department of Public Health:
“To determine whether equitable tolling may extend a statute of limitations, courts must analyze whether a plaintiff has established the doctrine’s three elements: timely notice to the defendant, lack of prejudice to the defendant, and reasonable and good faith conduct by the plaintiff.”
Deficiency in Pleading
Stratton observed that Metabyte had pled timely notice of its contentions—through bringing the Article 145 proceeding—and lack of prejudice, inasmuch as that proceeding sparked an awareness of the need to investigate, but said that the plaintiff had not pled facts showing “reasonable and good faith conduct.” She wrote:
“Even a preliminary assessment of whether Metabyte’s filing of the Article 145 proceedings satisfies the third factor requires information not alleged in the complaint. The current allegations show that Metabyte acted reasonably in filing an Article 145 proceeding, but only if it were objectively reasonable to try to hold Technicolor accountable in a French court. Put differently, if pursuing a civil action in France was reasonable, then, under the allegations of the complaint, it was reasonable to begin that process with an Article 145 proceeding.”
That, Stratton said, “does not answer the question of whether pursuing legal action in France was objectively ‘fair, proper, and sensible in light of the circumstances,’ ” utilizing language contained in Saint Francis.
She noted that acting in “good faith,” under that decision, requires a “ ‘state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking,...being faithful to one’s duty or obligation,’ ” which, she commented, is not reflected by allegations of the complaint, as it stands.
Based on that flaw, she said, the demurrer was properly sustained, although on a different basis.
The auction took place in December 2009 and Megabyte instituted the Article 145 proceeding in 2013, more than three years and four months later, and there was an additional interval of more than 11 months between the termination of the proceedings in France and the filing of the federal action in the Eastern District of California. Even if there is equitable tolling, it would not save the cause of action for fraud, governed in California by a three-year statute of limitation, or the cause of action for interference with contractual relations, subject to a two-year time-bar, or the other causes of action which must be brought within four years of the injury—unless the delayed discovery rule applies.
Breyer found that it does not apply, given the vagueness of Metabyte’s allegations, and Murphy did not discuss it. Metabyte insists that the clock did not start ticking on its causes of action until June 2012.
“Technicolor contends Metabyte failed to allege what new facts it learned in June 2012 that were essential to its complaint,” Stratton wrote. “Not so.”
The plaintiff maintains that it was not until that time that its president read of a lawsuit in France alleging that Technicolor had victimized another company in which it invested, acquiring its technology and forcing it into bankruptcy. That, Metabyte says, for the first time gave rise to a suspicion on its part that it, likewise, had been victimized.
Noting that, for purposes of a demurrer, the allegations of the pleading must be accepted as true, Stratton said the suspicion engendered by news reports “started the statute of limitations running in June 2012.”
Rejecting Technicolor’s argument that Breyer’s ruling that Metabyte’s state-court claims were time-barred had a preclusive effect, Stratton said that under federal procedure, a dismissal without prejudice is not deemed to be an adjudication on the merits and thus has no such effect.
The judgment of dismissal was reversed, with the opinion specifying:
“We grant Metabyte leave to amend and remand for further proceedings.”
The case is Metabyte, Inc. v. Technicolor S.A., 2023 S.O.S. 2909.
David Horowitz, Michael Shipley and Robert Carnes of the downtown Los Angeles firm of Kirkland & Ellis represented Technicolor. David H. Schwartz and Nancy Chung of the Law Offices of David H. Schwartz in San Francisco and Berkeley attorney Joseph A. Hearst acted for Metabyte.
Copyright 2023, Metropolitan News Company