JMS Labs Limited (USA) L.L.C. v. Silver Eagle Labs, Inc. et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	) Bankruptcy Case
) No. 05-31424DM
HANFORD NICHOLS LOCKWOOD, JR., 	)
)
Debtor. 	) Chapter 7
___________________________________)
JMS LABS LIMITED (U.S.A.), LLC, a 	) Adversary Proceeding
New Jersey corporation, 	) No. 08-3019DM
)
Plaintiff, 	)
)
v. 	)
)
SILVER EAGLE LABS, INC.; HANFORD 	)
NICHOLS LOCKWOOD, JR., MICHELE 	)
LOCKWOOD, INFINITE FINANCIAL 	)
SOLUTIONS, a Nevada corporation, 	)
INTEGRATED POWER, a corporation, 	)
and DOES 1 through 5, 	)
)
Defendants. )
___________________________________)
MEMORANDUM DECISION ON DEFENDANTS’ MOTION FOR SUMMARY
JUDGMENT
Defendants Hanford Nichols Lockwood, Jr. (“Lockwood” or
“Debtor”), Silver Eagle Labs, Inc. (“Silver Eagle”) and Michele
Lockwood (“Michele”) (collectively, “Defendants”) filed a motion
for summary judgment on all causes of action asserted against them
in the Second Amended Complaint (the “Complaint”) filed by
plaintiff JMS Labs Limited (U.S.A.), LLC (“JMS”). 	Following a
hearing on the motion on August 18, 2008, the court took the
Signed and Filed: November 17, 2008
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
November 19, 2008
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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matter under submission. 	For the reasons stated below, the court
will grant summary judgment in favor of Michele and Silver Eagle
with respect to certain breach of contract claims in the first
count and to the contractual interference claims in the third
count, will grant summary judgment in favor of Lockwood on the
second and third counts, and will deny the balance of the motion
for summary judgment as triable issues of fact exist.
UNDISPUTED FACTS
In 2002, Lockwood designed and patented an improved nasal
dilator system (the “023 Patent”); the application of this patent
resulted in a product known as the MaxAir Nasal Dilator
(“MaxAir”). 	Pursuant to a Patent and Know-how Purchase Agreement
(the “IP Agreement”), Lockwood licensed use of the 023 Patent to
JMS. 	At that time, Lockwood was the owner of the 023 Patent and
the licensor under the IP Agreement.
Pursuant to section 4(a) of the IP Agreement, JMS agreed to
pay Lockwood four percent of the net sales price of the nasal
dilators sold or leased by JMS. 	Section 16 of the IP Agreement
states that “LOCKWOOD agrees that any patentable or unpatentable
improvements on the MaxAir (tm) Nasal Dilators made by him shall
be included hereunder as though they had been included in this
Agreement when said Agreement was made and entered into, and this
without further payment or additional royalty by JMS.”
Thereafter, Lockwood applied for a new patent (“the 495
Patent”). 	JMS contends that the 495 Patent constitutes an
improvement of the 023 Patent and is thus part of the property
licensed to it under the IP Agreement, while Defendants contend
that the 495 Patent is not an improvement of the 023 Patent and is
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1Unless otherwise indicated, all chapter, section and rule
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330, and
to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037, as
enacted and promulgated prior to the effective date of The
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,
Pub. L. 109-8, 119 Stat. 23.
2At the hearing on the motion for summary judgment, counsel
for JMS acknowledged that the $150,000 purchase price would be
credited against any amounts owed to it by Lockwood following the
denial of his discharge.
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therefore not governed by the IP Agreement. 	On July 9, 2004,
Lockwood assigned his interests in the 495 Patent to Silver Eagle.
On May 9, 2005, Lockwood filed a chapter 13 petition and his
case was converted to chapter 7 on May 23, 2005; E. Lynn
Schoenmann was appointed as the chapter 7 trustee (“Trustee”). 	On
August 19, 2005, JMS filed an adversary proceeding objecting to
Lockwood’s discharge. 	This court entered a judgment denying
Lockwood’s discharge; the Bankruptcy Appellate Panel for the Ninth
Circuit affirmed the judgment on August 30, 2007.
On July 8, 2005, the IP Agreement was deemed rejected
pursuant to section 365(d)(1), 1 which required Trustee to assume
or reject (or obtain an extension to do either) the executory
contract within sixty days after the order for relief in order to
prevent a deemed rejection. 	More than one year later, on July 16,
2006, Trustee and JMS filed a joint Motion for Order Authorizing
and Approving Transfer of All Assets and Assumption and Assignment
of Executory Contract (the “Assignment Motion”).
In the Assignment Motion, JMS and Trustee sought approval of
a sale whereby JMS would acquire all of the rights of the estate
(including its interests in the 023 Patent and its interests as
the licensor under the IP Agreement) for $150,000. 2 	In other
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words, upon approval of the sale, JMS would become the owner of
the 023 Patent, as well as the licensee and licensor under the IP
Agreement. 	JMS did not intend to continue paying royalty payments
contemplated by Section 4(a) of the IP Agreement.
In the Assignment Motion (at page 5, lines 17-20), JMS and
Trustee stated that no dispute existed as to adequate assurance of
future performance or curing of defaults as “[i]n fact, the
Trustee and JMS believe that, upon the assumption and assignment
of the IP Agreement, the rights as owner of the Patents and as
licensee will merge in JMS.” 	Yet, when JMS presented the order
granting the Assignment Motion to the court for signing, it
included a clause that stated: “Nothing contained herein shall be
deemed to extinguish, by merger (including but not limited to
merger of title) or otherwise, any rights that JMS has under the
IP Agreement.”
In addition, on page 6 of the Assignment Motion, JMS and
Trustee stated that with respect to the contract being assumed and
assigned, “there are only two parties to the agreement, the
Trustee and JMS” and that “the parties are effectively amending
and then assuming the agreement, which is authorized procedure.”
Similarly, at the hearing on the Assignment Motion, JMS agreed
with the court that the proposed assumption and assignment was not
unlike a novation between JMS and Trustee.
The court entered an order granting the Assignment Motion.
Approximately one year later, Defendants filed a motion for
reconsideration of that order, arguing that (1) the court erred in
allowing the IP Agreement to be assumed and assigned following its
deemed rejection, and (2) the court erred in signing an order that
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3Because JMS inserted language in the order that was contrary
to that statement, the court held that JMS was judicially bound
and could not circumvent whatever legal defenses were available to
Lockwood by crafting a broader and clearly inconsistent order.
The court struck the improper language not only to prevent JMS
from gaining an advantage inconsistent with its assertions, but
also to protect the orderly administration of justice. 	It acted
“to protect against a litigant playing fast and loose with the
courts.” 	Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990)
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purported to prevent the invocation of legal defenses or doctrines
(specifically, the doctrine of merger) otherwise possibly
available to Lockwood as a result of the sale of the 023 Patent
and the assignment of the IP Agreement. 	The Defendants requested
this court to strike the language in the order regarding merger,
as that relief had not been sought in the Assignment Motion and
was inconsistent with the statements made by JMS and Trustee.
The court did not vacate the order authorizing the assumption
and assignment of the IP Agreement to JMS, but did strike language
in the order purporting to restrict whatever defenses the
Defendants may have arising from the deemed rejection or breach of
the IP Agreement, as the Defendants were not parties to the
assumption and assignment. 	More importantly, the court struck the
language in the order stating that the order did not extinguish by
merger or otherwise any rights of JMS in the IP Agreement, as the
Assignment Motion did not request such relief and such relief was
inconsistent with JMS’s prior expression of its belief that the
rights as owner of the Patents and as licensee would merge in JMS.
In striking the merger language from the order, the court observed
that JMS had judicially admitted that merger had occurred, but
also noted it was making no determination whether the doctrine of
merger would apply. 3
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(internal quotations and citations omitted).
That said, while JMS judicially admitted that merger may
apply and was thus estopped from inserting contradictory language
in the order preventing Defendants from asserting that defense, it
did not -- despite the court’s language -- admit for all purposes
that the legal doctrine was applicable. 	JMS did not admit that
merger (as defined by law) had actually occurred, but rather
expressed its belief that its interests as licensee, licensor and
owner of the patent would merge. 	In fact, the court clearly
identified as an open issue whether the legal defense of merger
was applicable, noting that the matter had not been properly
presented or briefed. 	(See footnote 8 to the court’s Memorandum
Decision dated April 7, 2008).
4Defendants focus much of their summary judgment motion on
their arguments that JMS judicially admitted that (1) the doctrine
of merger applies and (2) Lockwood is no longer a party to the IP
Agreement. 	They do not address the substantive elements of a
merger defense (except to state what the consequences of merger
are under California real estate law). 	Therefore, a denial of
summary judgment on the judicial admission theory does not resolve
the underlying substantive question of whether merger actually
applies here.
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Defendants have now filed a motion for summary judgment
contending that, among other things, JMS has judicially admitted
that Lockwood is no longer a party to the IP Agreement and is no
longer required to turn over any improvements to the 023 Patent to
JMS. 4 	The court will address the contentions of Defendants in the
order of the causes of action set forth in the Complaint.
DISCUSSION
I. 	COUNT ONE: BREACH OF CONTRACT
A. 	Breach of Contract Claim Against Lockwood
Lockwood contends that, as a matter of law and undisputed
fact, he is no longer a party to the IP Agreement and thus cannot
be liable for its breach. 	In particular, Lockwood argues that (1)
the court has found, and JMS has judicially admitted, that
Lockwood is not a party to the assumed and assigned IP Agreement,
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5The Ninth Circuit explained in Onecast Media that
[w]hile rejection of a lease prevents the debtor from
obtaining future benefits of the lease (such as ongoing
possession of leased premises), it does not rescind the
lease or defeat any pending claims or defenses that the
debtor had in regard to that lease. 	See 3 COLLIER ON
BANKRUPTCY § 365.09[1] (Alan N. Resnick & Henry J.
Sommer eds., 15th rev. ed. 2005) (“Rejection does not
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(2) JMS waived Lockwood’s breaches in seeking approval of the
assumption and assignment, and (3) JMS has conceded that the 023
Patent and the license merged, therefore eliminating JMS’s rights
as licensee under the IP Agreement.
Lockwood’s first argument centers on the notion that JMS and
Trustee were the only two parties to the Assignment Motion and to
the assumed and assigned IP Agreement. 	Prior to bankruptcy, the
two parties to the IP Agreement were Lockwood and JMS. 	When
Lockwood filed bankruptcy, his ownership of the 023 Patent and his
rights as a licensor vis-a-vis JMS passed to Trustee. 	In that
respect, the IP Agreement was still a two-party agreement going
forward. 	But nothing relieved Lockwood of his obligations under
Section 16 of the IP Agreement, a liability that continues subject
to defenses given that his discharge has been denied. 	Even if the
IP Agreement had remained “rejected,” that rejection did not
terminate the contract. 	Instead, the rejection acted as a breach
by Trustee and Lockwood’s chapter 7 estate. 	See 11 U.S.C.
§ 365(g) (“ . . . the rejection of an executory contract or
unexpired lease of the debtor constitutes a breach of such
contract or lease . . .”); First Ave. West Bldg., LLC v. James (In
re Onecast Media, Inc.), 439 F.3d 558, 563 (9th Cir. 2006)
(rejection constitutes a breach of contract). 5
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. . . 	affect the parties’ substantive rights under the
contract or lease, such as the amount owing or a measure
of damages for breach and does not waive any defenses to
the contract.”).
Onecast Media, 439 F.3d at 563.
6A chapter 7 discharge discharges a debtor from all
prepetition “claims” except for those specified in section 523(a).
11 U.S.C. § 727(b); denial of discharge means that those claims
survive. 	The Bankruptcy Code’s definition of “claim” is
expansive:
(5) “claim” means-
(A) right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of
performance if such breach gives rise to a right to
payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or
unsecured[.]
11 U.S.C. § 101(5). 	Therefore, JMS’s right to an equitable remedy
for breach of contract or for damages arising from a breach
survived the bankruptcy; the fact that the IP Agreement became
property of Debtor’s estate (and was assumed, assigned or even
rejected by Trustee) does not -- in and of itself -- relieve
Lockwood from the consequences of the denial of discharge, nor
does it deprive him of defenses otherwise available to him.
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Because Lockwood’s discharge was denied, bankruptcy law
(including the executory contract provisions of section 365) did
not relieve him of his liability under the IP Agreement; 6 to the
extent the IP Agreement is enforceable against Lockwood under
state or other law, JMS is not precluded from asserting its breach
of contract claim against him. 	The decisions by JMS and the
estate with respect to assumption or rejection of the IP Agreement
are not pertinent to Lockwood’s non-discharged liability under
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7JMS and Trustee improperly inserted language in the order
approving the Assignment Motion purporting to change or negate
Lockwood’s rights under the IP Agreement, but the court has
stricken the inappropriate language. 	If JMS has breached its
obligations to Lockwood or is otherwise not rendering performance
contemplated by the IP Agreement, Lockwood may be relieved of his
duties under the IP Agreement as well. 	That is a factual and
legal issue not appropriate for summary adjudication, and is not
before the court at this time.
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that agreement 7 (except to the extent that JMS expressly waived
$150,000 of its prepetition claim against Lockwood and the
estate).
Similarly, Defendants also contend that by allowing the
estate to assume and assign the IP Agreement, JMS waived all
breaches by Lockwood of the IP Agreement (inasmuch as section 365
requires defaults by the debtor or the estate to be cured prior to
assumption and assignment). 	JMS clearly waived the breach arising
from Trustee’s deemed rejection of the IP Agreement. 	JMS also
clearly and expressly waived $150,000 of its prepetition claim
against Debtor and the estate. 	JMS and Trustee, however,
explicitly agreed that “JMS will retain the balance of its claim
(i.e., the total amount of the claim less $150,000).” 	The Sale
and Assignment Agreement approved when the Assignment Motion was
granted also provided that nothing contained therein “shall
constitute a waiver of its rights to enforce, among other things,
any pre-petition injunction in favor or [sic] JMS against Debtor
(to the full extent any such injunction is non-dischargeable under
applicable law). 	Therefore, this court cannot find as a matter of
undisputed fact that by allowing the IP Agreement to be assumed,
JMS waived breaches, if any, of the IP Agreement by Lockwood.
Finally, Lockwood asserts that, based on JMS’s expression of
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8Lockwood has cited no case authority indicating that the
doctrine of merger applies to licenses and patents and other
intellectual property.
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its belief that its interests would merge upon approval of the
assumption and assignment agreement, the doctrine of merger
precludes JMS’s claims under the IP Agreement. 8 	For the reasons
stated in footnote 3, JMS’s prior expression of its belief that
its interests would merge estopped it from inserting language
purporting to prevent Defendants from asserting the defense of
merger; it is not a judicial concession that such a defense would
be successful.
In addition, even if JMS’s interests as licensee, licensor
and owner of the 023 Patent have merged, Lockwood has not
demonstrated as a matter of patent or intellectual property law
that he could freely use and market improvements, if any, to that
patent. 	In other words, Lockwood has not demonstrated for the
purposes of summary judgment that a merger of JMS’s interests
relieves him of his obligations under section 16 of the IP
Agreement. 	For these reasons, the court will not grant summary
judgment dismissing JMS’s breach of contract claim against
Lockwood.
B. 	Breach of Contract Claim Against Michele and Silver
Eagle
The Complaint refers to breaches of the IP Agreement by the
Defendants. 	JMS acknowledges that Michele is not a party to the
IP Agreement (Opposition at 32:6); she therefore cannot be in
breach of it. 	The court will grant summary judgment in favor of
Michele on the breach of contract claim.
JMS contends that Silver Eagle became contractually bound by
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the IP Agreement when Lockwood assigned his interests in the 495
Patent to it. 	JMS similarly asserts that it is a third party
beneficiary of that assignment. 	While issues of fact may exist as
to whether JMS is a third party beneficiary of the assignment
(thus precluding summary judgment), JMS has not demonstrated that
Silver Eagle is a party to the IP Agreement. 	JMS may have a claim
against Silver Eagle for infringement of its license or for
misappropriation or for interference with contractual relations
and rights, but Silver Eagle cannot be liable for breaching a
contract to which it is not a party. 	The court will therefore
grant partial summary judgment in favor of Silver Eagle on the
breach of contract claim.
II. 	COUNT TWO: MISAPPROPRIATION OF TRADE SECRET
Defendants contend that the court should grant summary
judgment against JMS on its claim for misappropriation of trade
secrets because (1) the cause of action is based on IP Agreement
to which none of the Defendants are parties; (2) no “trade secret”
existed; and (3) the cause of action is barred by statute of
limitations. 	The court is not persuaded by the first two
arguments, but agrees that the misappropriation claim against
Lockwood is time-barred.
As set forth in the discussion on Count One (breach of
contract), the court cannot at this time determine that Lockwood
is free of liability under the IP Agreement. 	Therefore,
Defendants’ first argument in support of summary judgment on Count
Two is not persuasive.
In their second argument, Defendants contend that as a matter
of law, the “know-how” and alleged improvements to the 023 Patent
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9These sections provide JMS with an exclusive license to use
the 023 Patent and with the right to prevent unauthorized
disclosure and use of the know-how.
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were not “trade secrets” under California Civil Code section
3426.1(b). 	The court cannot make such a determination at this
juncture since Sections 2 and 9 of the IP Agreement indicate that
the “know-how” is protected information not for public
disclosure. 9 	The know-how and improvements therefore appear to
fall within section 3426.1(d)’s definition of a “trade secret”:
“information, including a formula, pattern, compilation, program,
device, method, technique, or process, that . . . [d]erives
independent economic value, actual or potential, from not being
generally known to the public or to other persons who can obtain
economic value from its disclosure or use [] and [i]s the subject
of efforts that are reasonable under the circumstances to maintain
its secrecy.” 	Cal. Civ. Pro. § 3426.1.
Finally, Defendants argue that the misappropriation claim is
time-barred. 	California Civil Code section 3426.6 provides that a
misappropriation action “must be brought within three years after
the misappropriation is discovered or by the exercise of
reasonable diligence should have been discovered.” 	Cal. Civ. Code
§ 	3426.6. 	Defendants contend that JMS knew about the 	purported
misappropriation as early as March 2004, as the patent application
for Patent 495 was discussed in a state court arbitration
proceeding and mentioned in the arbitration award dated June 2,
2004. 	In particular, the arbitrators found that the patent
application described a design/product that was an improvement of
the 023 Patent.
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10JMS has not alleged that the statute of limitations was
tolled by Lockwood’s bankruptcy with respect to this cause of
action (although it did as to Count Three of the Complaint), and
the court will not raise that defense on its behalf.
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JMS did not file its misappropriation claim until July 2007,
more than three years after the arbitration and the arbitration
award. 	It should have known about the purported misappropriation
then, and the misappropriation action against Lockwood is
therefore time-barred under section 3426.6. 10 	While JMS contends
that it did not discover the alleged misappropriation until
February 2005 (when it received a letter from Lockwood’s counsel
demanding that JMS manufacture and sell the BreatheAide Strip, the
product resulting from the 495 Patent), the admissions by JMS’s
managing member of JMS (Matthew Switsky) in opposition to the
motion for summary judgment is not consistent with that
contention. 	Mr. Switzky acknowledges that the parties had
stipulated to arbitration the issue of “whether a Breathe-Aide
Nasal Strip [i.e., the Patent 495 product] . . . is covered by
[the IP Agreement]” and that the arbitrators had determined the
issue in its favor.
California Civil Code section 3426.6 states that for its
purposes, “a continuing misappropriation constitutes a single
claim.” 	Therefore, the first discovered and alleged
misappropriation by Lockwood (the submission of the application
for the 495 Patent) commenced the limitations period as to the
claims against him and any subsequent misappropriations did not
extend the bar date. 	The misappropriation claims against him are
time-barred, and the court will enter summary judgment in his
favor on this count.
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The court will deny summary judgment with respect to the
misappropriation claims against Silver Eagle and Michele.
Lockwood assigned his interests in the 495 Patent to Silver Eagle
on July 9, 2004; on July 6, 2007, JMS filed its state court action
alleging its claim for misappropriation of trade secret. Because
JMS could not have discovered Silver Eagle’s acquisition of the
495 Patent prior to July 9, 2004, its state court complaint was
filed within the limitations period of section 3426.6.
Defendants allege that the assignment to Silver Eagle
constituted a “continuing misappropriation” relating back to
Lockwood’s initial purported misappropriation (and thus barred by
section 3426.6), but the California Supreme Court has held that a
violation by different defendants may give rise to different
accrual dates for trade violation claims, notwithstanding section
3426.6:
[T]here may be separate claims of continuing
misappropriation among different defendants, with
differing dates of accrual and types of tortious conduct
-- some defendants liable for initial misappropriation
of the trade secret, others only for later continuing
use. 	This holding does not conflict with our conclusion
that there is only a single UTSA claim against a single
defendant misappropriating a single plaintiff’s trade
secret.
Cadence Design Systems, Inc. v. AvantA Corp., 29 Cal.4th 215, 127
Cal.Rptr.2d 169, 176 (2002). 	Consequently, any misappropriations
by Silver Eagle and Michele were not continuations of Lockwood’s
initial purported misappropriations for the purposes of California
Civil Code section 3426.6. 	Defendants have not produced
undisputed evidence that JMS knew or should have known of
misappropriations by Michele or Silver Eagle more than three years
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11Neither the Complaint nor the Opposition describe how or
when Michele misappropriated trade secrets, other than stating
that Lockwood transferred his interests in Silver Eagle to Michele
in 2004. 	To the extent that Michele’s liability is derivative to
that of Silver Eagle, the misappropriation claim against her is
not time-barred.
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before they commenced the underlying action. 11 	The court will
therefore deny summary as to Count Two with respect to them.
III. COUNT THREE: INTERFERENCE WITH ECONOMIC RELATIONSHIP
Defendants argue that the cause of action for interference
with contractual relations cannot survive because no contractual
relationship now exists between Lockwood and JMS. 	For the reasons
set forth above in the Count One discussion, triable issues of
fact preclude a summary judgment that Lockwood is no longer bound
by the IP Agreement.
Defendants also argue that Count Three is barred by the
statute of limitations. 	The purported breach and misappropriation
giving rise to Count Three occurred in 2003 and 2004 (i.e., the
application for the 495 Patent and the assignment of 495 Patent to
Silver Eagle). 	In 2004, the arbitrators found that the technology
described in the application for the 495 Patent constituted an
improvement of the 023 Patent. 	A cause of action for interference
with economic relations must be commenced within two years of the
alleged interference. 	Cal. Code Civ. Pro. § 	339. 	To the extent
this cause of action is based on Lockwood’s development and use of
the technology underlying the 495 Patent and his assignment of
that technology and patent to Silver Eagle, the action is time-
barred under section 339. 	Perhaps recognizing this, JMS initially
conceded on page 41 of in its written opposition to the that “any
conduct by Silver Eagle Labs will be barred by the Statute of
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12The Second Amended Complaint alleges at paragraphs 46-50
that Silver Eagle and Michele interfered with its exclusive
license and economic rights under the IP Agreement and that they
induced Lockwood to breach the IP Agreement. 	It did not allege
that Lockwood interfered with its rights under the IP Agreement,
nor could it, as Lockwood was a party to the IP Agreement and thus
would be liable for breach (not inference or inducement to
breach). 	Yet in its opposition to the motion for summary
judgment, JMS asserted that Lockwood interfered with JMS’s
contractual relationships with other parties. 	This assertion is
inconsistent with the Complaint, and JMS has not asserted any
facts with respect to the dates and nature of such interferences
and contracts. 	Given that JMS made the same allegations in the
arbitration proceeding and in fact was the beneficiary of a
finding in 2004 that Lockwood and Silver Eagle had interfered with
JMS’s relationships with its customers, it appears that claims for
interference with third party contracts accrued in 2004 or earlier
and still would be barred by California Code of Civil Procedure
339.
In any event, JMS’s mere conclusory assertions in its
opposition that Defendants interfered with contracts other than
the IP Agreement (especially when such assertions were not plead
in the Complaint) is insufficient to establish the existence of a
disputed material fact on the statute of limitations issue.
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Limitations.” 	JMS withdrew this concession at oral argument, but
did not set forth any facts establishing a legitimate dispute that
the purported interference with JMS’s economic interests and
exclusive license occurred within two years of the commencement of
the underlying action. 12
IV. 	COUNT FOUR: CONVERSION
JMS stated on page 41 of its opposition that it will
voluntarily dismiss this cause of action.
V. 	COUNT FIVE: FRAUDULENT TRANSFER
JMS asserts a fraudulent transfer action against Michele and
Silver Eagle. 	California Civil Code sections 3429.04, 3439.05 and
3439.07 permit creditors to file actions to avoid fraudulent
transfers made by the debtor after the creditor’s claim arose.
Generally, absent court approval, only a trustee or debtor-in-
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possession has standing to assert fraudulent transfer claims once
a petition has been filed. 	State of California v. PG & E Corp.
(In re Pac. Gas & Elec. Co.), 281 B.R. 1, 13 (Bankr. N.D. Cal.
2002). 	A creditor may, however, pursue such claims upon receiving
permission from the court. 	Id. 	Furthermore, where a trustee has
abandoned (or as here, assigned) such claims and where a debtor’s
discharge has been denied or a debt to a creditor has been
declared nondischargeable, the creditor retains his creditor
status and can pursue state law remedies (such as a fraudulent
transfer action) in collecting its debt.
Section 3439.09 of the California Civil Code provides the
applicable statute of limitations with respect to fraudulent
transfers under state law. 	Under that section, an action to
recover an transfer made with actual intent to delay or defraud
creditors must be brought within four years after the transfer or,
if later, within one year after the transfer or obligation was or
could reasonably have been discovered by the claimant. 	An action
to recover a transfer made without the receipt of reasonably
equivalent value (and while the debtor was insolvent or without
sufficient remaining assets) is subject to a four-year statute of
limitations from the time the transfer was made or the obligation
was incurred. 	Id.
Here, the purported fraudulent transfers occurred in 2004 and
the action was filed in 2007. 	The action was timely under state
law. 	Defendants, however, contend that JMS is barred from
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13Section 546(a) provides:
(a) An action or proceeding under section 544, 545, 547, 548, or
553 of this title may not be commenced after the earlier of--
(1) the later of--
(A) 2 years after the entry of the order for relief; or
(B) 1 year after the appointment or election of the
first trustee under section 702, 1104, 1163, 1202, or
1302 of this title if such appointment or such election
occurs before the expiration of the period specified in
subparagraph (A); or
(2) the time the case is closed or dismissed.
11 U.S.C. § 546(a).
14JMS acknowledged on page 43 of its opposition that it is not
asserting any claims under section 548.
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pursuing the fraudulent transfer action because of section 546(a) 13
of the Bankruptcy Code, which imposes a two-year statute of
limitation on actions commenced pursuant to, inter alia, section
544 and section 548. 	Section 544 confers “strong-arm” power on a
trustee or debtor-in-possession to pursue fraudulent transfer
actions that a judgment creditor could assert under state law.
JMS is not asserting its fraudulent transfer pursuant to section
544; rather, it is pursuing the claim under its independent state
law right to seek avoidance of an actually or constructively
fraudulent transfer as a creditor holding a claim that has not
been discharged. 	Therefore, section 546(a) does not apply and the
court will deny the motion for summary judgment with respect to
Count Five. 14
VI. 	SIXTH, SEVENTH AND EIGHTH CAUSES OF ACTION: CONSPIRACY,
SPECIFIC PERFORMANCE, AND INJUNCTIVE/DECLARATORY RELIEF
Because the court is not granting summary judgment on the
fraudulent transfer and misappropriation claims against Michele
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and Silver Eagle, it is not dismissing the claim that Defendants
conspired to commit these courts. 	Moreover, as set forth in the
discussion of Count One, the court is not entering summary
judgment absolving Lockwood of liability under the IP Agreement;
triable issues remain. 	For the same reasons, the court will not
enter summary judgment in Defendants’ favor on the Counts Seven
and Eight for specific performance and injunctive/declaratory
relief.
CONCLUSION
Counsel for Defendants should prepare an order consistent
with this Memorandum Decision, reciting that the relief is being
granted in part and denied in part for the reasons set forth in
the decision. 	When uploading the proposed order, counsel for
Defendants should file a certificate of service indicating that it
has served opposing counsel in compliance with B.L.R. 9021-1. 	The
order should reflect that the court will hold a status conference
in this adversary proceeding on February 12, 2009, at 1:30 p.m.
**END OF MEMORANDUM DECISION**
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COURT SERVICE LIST
Lawrence A. Jacobson, Esq.
Sean M. Jacobson, Esq.
Cohen and Jacobson, LLP
900 Ventura Blvd., Ste. 600
Redwood City, CA 94063
Paul F. Kirsch, Esq.
Angus M. Macdonald, Esq.
Priya Sreenivasan, Esq.
Townsend and Townsend and Crew, LLP
Two Embarcadero Center, 8th Fl.
San Francisco, CA 94111
Barry Milgrom, Esq.
Luce, Forward, Hamilton & Scripps LLP
Rincon Centr II
121 Spear St., Ste. 200
San Francisco, CA 94105-1582
Roger R. Rubin, Esq.
1155 Pine St.
San Francisco, CA 94109
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