Federal District Court Opinions
ICONIX, INC. v. TOKUDA, (N.D.Cal. 2006) ICONIX, INC.,
Plaintiff, v. LANCE TOKUDA, ET AL., Defendants. No. C
06-2201 SBA, [Docket Nos. 21, 82, 116, 130]. United States
District Court, N.D. California. September 26, 2006
ORDER
SAUNDRA ARMSTRONG, District Judge
This matter comes before the Court on Plaintiff’s Motion
for Preliminary Injunction [Docket No. 21], Defendants’
Evidentiary Objections to the Declaration of Ronald Alepin
and Jeff Wilbur [Docket No. 82], Plaintiff’s Objections to
Certain Evidence filed in Opposition to Motion for
Preliminary Injunction and Motion to Strike [Docket No.
116], and Defendants’ Objections to New Evidence and
Argument in Iconix’s Reply Memorandum [Docket No. 130].
BACKGROUND[fn1]
Plaintiff Iconix, Inc. (“Plaintiff” or “Iconix”) is a
corporation organized and existing under the laws of the
state of Delaware with its principal place of business in
Mountain View, California.
Defendants in this matter are Lance Tokuda, Jia Shen, and
netPickle, Inc. (collectively, “Defendants”).
Defendant Lance Tokuda (“Tokuda”) is a former employee and
officer of Iconix; Tokuda Page 2 resides in Foster City,
California.
Defendant Jia Shen (“Shen”) is a former employee of
Iconix; Shen resides in East Palo Alto, California.
Defendant netPickle, Inc. (“Netpickle”) is a corporation
organized and existing under the laws of the State of
Delaware and has its principal place of business in Foster
City, California.
Plaintiff provides email identity services that
proactively combat email fraud spawned by phishing.
Phishing is a form of email fraud where senders impersonate
legitimate businesses and organizations to try to get
recipients to divulge personal information such as
passwords and account numbers so the senders can steal the
recipient’s identity and/or funds from the recipient’s
account.
Tokuda and Shen began their employment at Iconix in
December of 2004. Tokuda was the Vice President of
Engineering and Chief Technology Officer at Iconix and was
in charge of setting the engineering and development
direction for Iconix and for managing the engineering team.
Among other things, Tokuda supervised the development of
Iconix’s new intellectual property and ideas. Shen was the
Manager of Client Development at Iconix, and his
responsibilities included overseeing the work of software
development.
As employees of Iconix, Tokuda and Shen both signed
contracts entitled, “Proprietary Information and Inventions
Assignment Agreement.” These contracts are quoted in
pertinent part below.
In the fall of 2005, Plaintiff was actively generating,
developing, and evaluating ideas for increasing traffic to
Plaintiff’s website. This activity included developing new
features that would entice consumers to download Iconix’s
email identity product (“email ID product”). Of particular
interest to Iconix was the ability to penetrate community
website such as www.myspace.com, where web users create
profiles and socially network with one another. To
implement this marketing strategy, Plaintiff created a
separate website, called Uberfuze.com (“Uberfuze”), that
was targeted directly at social networking users. Wilbur
Decl. at ¶ 22. Page 3
In the fall of 2005, Iconix engineers, including Tokuda,
discussed the idea of creating a feature that would rotate
through a user’s pictures. The user would download Iconix’s
email ID product and then be able to use the feature.
Iconix continued to evaluate the feature and began to test
it as a marketing strategy by the beginning of 2006.
In late December of 2005, Tokuda gave notice to Iconix.
Tokuda’s last day of employment was January 23, 2006.
On or about January 20, 2006, Iconix discovered that in or
around October 2005, while he was still an officer of
Iconix, Tokuda secretly registered the domain name
rockmyspace.com. Prior to that time, Tokuda had covertly
been developing a customizable slideshow feature for his
own personal benefit. While an Iconix officer, Tokuda also
secretly formed his own company, Netpickle, for the purpose
of exploiting the customizable slideshow feature for his
own benefit. Tokuda also began soliciting other Iconix
personnel, including Shen, to join him in creating his own
customizable slideshow business. Tokuda’s solicitation of
Iconix employees and the Defendants’ development of a
competing customizable slideshow feature occurred on
Iconix’s company time and through the use of Iconix’s
computers. Shen and Tokuda launched rockmyspace.com on the
night of November 13-14, 2005. Shen Decl. ¶ 56;
Tokuda Decl. ¶ 59.
Since January, 2006, Tokuda and NetPickle registered the
domain name rockyou.com. Defendants currently market their
customizable slideshow feature using the www.rockyou.com
website. Tokuda Decl. at ¶ 75. (Defendants’
slideshow technology and website are referred to
collectively as “rockmyspace,” “rockmyspace.com,”
“RockYou,” and “rockyou.com.” These terms are used
interchangeably.). By February 19, 2006, rockmyspace had
already exceeded 1.1 million registered users. Wan Decl.,
Ex. 0, at NP002545.
When Iconix found out that Shen helped Tokuda take
Iconix’s ideas and property to form his own customizable
slideshow business, Iconix was forced to terminate Shen’s
employment.
On March 13, 2006, Iconix sent Defendants a letter
requesting that they return the customizable slideshow
program and source code to its rightful owner, Iconix, and
that they Page 4 cease and desist all other activity in
which they are engaged that uses software or derivative
works owned by Iconix. Defendants refused to do so. On
March 27, 2006, Plaintiff filed the original Complaint in
this matter. On May 4, 2006, Plaintiff filed the instant
Motion for Preliminary Injunction.
LEGAL STANDARD
Federal Rule of Civil Procedure 65 permits the issuance of
a preliminary injunction to preserve the positions of the
parties until a full trial can be conducted. LGS
Architects, Inc. v. Concordia Homes, 434 F.3d 1150, 1158
(9th Cir. 2006) (citing University of Texas v. Camenisch,
451 U.S. 390, 395 (1981)). When a party is seeking a
preliminary injunction, he or she must show either: “(1) a
combination of probable success on the merits and the
possibility of irreparable injury, or (2) that serious
questions are raised and the balance of hardships tips
sharply in favor of the moving party. These standards `are
not separate tests but the outer reaches of a single
continuum.'” Stuhlbarg Int’l Sales Co. v. John D. Brush &
Co., Inc., 240 F.3d 832, 839-40 (9th Cir. 2001) (citation
omitted). “These two formulations represent two points on a
sliding scale in which the required degree of irreparable
harm increases as the probability of success decreases.”
Roe v. Anderson, 134 F.3d 1400, 1402 (9th Cir. 1998)
(citation omitted). “An irreparable harm is one that cannot
be redressed by a legal or equitable remedy following
trial.” Optinrealbig.com, LLC v. Ironport Sys., 323 F.
Supp. 2d 1037, 1050 (N.D. Cal. 2004) (Armstrong, J.).
Under the sliding scale theory, a party seeking an
injunction “need not demonstrate that he will succeed on
the merits, but must at least show that his cause presents
serious questions of law worthy of litigation.” Topanga
Press, Inc. v. City of Los Angeles, 989 F.2d 1524, 1528
(9th Cir. 1993). “Serious questions” are those which are
“substantial, difficult, and doubtful, as to make them fair
ground for litigation and thus for more deliberative
investigation.” Senate of State of Cal. v. Mosbacher, 968
F. 2d 974, 977-78 (9th Cir. 1992) (citing Gilder v. PGA
Tour, Inc., 936 F. 2d 417, 422 (9th Cir. 1991)); Republic
of the Philippines v. Marcos, 862 F. 2d 1355, Page 5 1362
(9th Cir. 1988) (“`serious questions’ refers to questions
which cannot be resolved one way or the other at the hearing
on the injunction and as to which the court perceives a
need to preserve the status quo lest one side prevent
resolution of the questions or execution of any judgment by
altering the status quo.”). Although the serious questions
posed by the movant “need not promise a certainty of
success, nor even a probability of success,” he or she must
nevertheless demonstrate a “fair chance of success” on the
merits. Gilder, 936 F.2d at 422. Finally, in cases where
the public interest may be affected, the court must
consider the public interest as a factor in balancing the
hardships. Harris v. Bd. of Supervisors, 366 F.3d 754, 760,
766 (9th Cir. 2004) (citing Fund for Animals, Inc. v.
Lujan, 962 F.2d 1391, 1400 (9th Cir. 1992)).
“`The grant of a preliminary injunction is the exercise of
a very far reaching power never to be indulged except in a
case clearly warranting it.'” Sierra Club v. Hickel, 433
F.2d 24, 33 (9th Cir. 1970).
ANALYSIS
A. Objections to New Evidence in Iconix’s Reply Brief
Defendants object to the new evidence and argument in
Plaintiff’s Reply Brief. Defendants request that the Court
either strike the new evidence and argument or,
alternatively, accept the supplemental declarations that
Defendants have submitted to the Court.
Defendants cite to Provenz, in which the Ninth Circuit
held that “where new evidence is presented in a reply to a
motion for summary judgment, the district court should not
consider the new evidence without giving the non-movant an
opportunity to respond.” Provenz v. Miller, 102 F.3d 1478
(9th Cir. 1996) (citation omitted).
Plaintiff argues that the holding of Provenz applies only
in the context of summary judgment motions. The Court finds
that Plaintiff’s argument is erroneous. The Ninth Circuit
has applied the holding of Provenz to preliminary
injunction motions, holding that “a district court may
consider new evidence presented in a reply brief if the
district court gives the adverse party Page 6 an
opportunity to respond,” and finding no abuse of discretion
where the district court heard and considered a response to
new arguments raised, for the first time, in a reply brief.
El Pollo Loco, Inc. v. Hashim, 316 F.3d 1032, 1040-41 (9th
Cir. 2003).
Plaintiff argues that any new arguments and evidence in
its Reply “respond specifically to points raised in
Defendants’ oppositions” and states that “[e]ven if the
court were to find that the rule of Provenz applied outside
the summary judgment context . . . the court should
nonetheless deny Defendants’ request to strike the evidence
and argument since Defendants have had an opportunity to
respond” with their supplemental declarations. Because the
rule of Provenz applies to preliminary injunction motions,
the Court SUSTAINS Defendants’ objection to the new
evidence and argument in Plaintiff’s Reply and accept the
supplemental declarations filed with Defendants’ objection,
thus providing Defendants with a chance to respond.
B. Other Objections
1. Paragraph 9 of Tokuda Decl. and Paragraph 49 of Shen
Decl.
Plaintiff objects to Paragraph 9 of the Tokuda Declaration
and Paragraph 49 of the Shen Declaration on the grounds
that these statements are parol evidence, inadmissible to
contradict the terms of the Proprietary Agreements under
California law. Defendants do not respond to these
objections.
Paragraph 9 of the Tokuda Declaration states as follows:
Months later, in late Spring of 2005 or early Summer of
2005, [Iconix’s CEO] Mr. Picazo came to me with the Iconix
Proprietary Information [and Inventions Assignment]
Agreement and wanted me to sign it. I had signed similar
agreements before, but this one bothered me. I felt it
required me to disclose every idea I had whether it was
related to Iconix or not, including ideas I had away from
work. That was impractical since I have been doing
start-ups for most of my entire career, and I often have
multiple ideas in a day. I expressed my concern to Mr.
Picazo and he said that he had used this form with his
previous companies. He told me not to worry, “it’s just
Bob” and that the agreement was a formality. By this he
was referring to Chief Financial Officer and General
Counsel Bob Zager. Mr. Picazo said that he would never use
the agreement against me and that even he had signed it.
Based on what he said, I signed the agreement.
Tokuda Decl. at ¶ 9. Page 7
Paragraph 49 of the Shen Declaration states as follows:
When we first received our Proprietary Agreements in
March/April 2005, I had concerns. They seemed overbroad.
Lance [Tokuda] and I both asked for a revision before we
signed. Months later, I was asked to sign a new,
supposedly modified, Proprietary Agreement in haste. Mr.
Picazo said he really needed me to sign it, and it was
urgent that I do so. I was told that the agreement was a
mere formality and was needed to complete my HR file. In
response to my concerns, Mr. Picazo said that these things
“would never be used” and “not to worry.” I signed it in
good faith based on Mr. Picazo’s representations.
Shen Decl. at ¶ 49.
According to California Supreme Court, “The parol evidence
rule is codified in Civil Code section 1625[fn2] and Code
of Civil Procedure section 1856.[fn3] It `generally
prohibits the introduction of any extrinsic evidence,
whether oral or written, to vary, alter or add to the
terms Page 8 of an integrated written instrument.'” Casa
Herrera, Inc. v. Beydoun, 32 Cal. 4th 336, 343 (Cal. 2004).
“[T]he rule applies to any type of contract, and its
purpose is to make sure that the parties’ final
understanding, deliberately expressed in writing, shall not
be changed.” Id. at 345 (quotation omitted).
The parol evidence rule applies if the following two
inquiries are answered affirmatively: “1) was the writing
intended to be an integration, i.e., a complete and final
expression of the parties’ agreement, precluding any
evidence of collateral agreements; and 2) is the agreement
susceptible of the meaning contended for by the party
offering the evidence?” Wang v. Massey Chevrolet, 97 Cal.
App. 4th 856, 873 (Cal.Ct.App. 2002) (holding that the
plaintiffs were not entitled to present testimony that they
were induced to enter an automobile lease by promises that
they could disregard terms of the lease).
In the instant case, the Proprietary Agreements signed by
Tokuda and Shen both state,
The terms of this Agreement are the final expression of
my agreement with respect to the subject matter hereof and
may not be contradicted by evidence of any prior or
contemporaneous agreement. This Agreement shall constitute
the complete and exclusive statement of its terms. . . .
This Agreement may not be amended or waived except by a
writing signed by me and by a duly authorized
representative of the Company other than me.
Kuwayti Decl., Ex. 1 ¶ 13, Ex. A, ¶ 10-11, Ex.
B, ¶ 10-11. Therefore, the Court finds that the
Proprietary Agreements were intended as integrations, thus
satisfying the first prong of the test described in Wang.
The second prong is likewise satisfied: Tokuda’s and Shen’s
claims that the agreement “would never be used” against
them is inconsistent with the Proprietary Agreements’
explicit statement, quoted above, that the Proprietary
Agreement “may not be . . . waived except by a writing
signed by” the employee subject to the agreement and an
authorized representative of the company. Neither Tokuda nor
Shen claim to have pursued nor received any such writing.
Because paragraph 9 of the Tokuda Declaration and paragraph
49 of the Shen Declaration are barred by the parol evidence
rule, and given that Defendants do not oppose these
objections, the Court SUSTAINS Plaintiff’s objections and
STRIKES these paragraphs. Page 9
2. All Other Objections
The Court DENIES all other objections as MOOT, as the court
has not relied on other materials to which Plaintiff or
Defendants object.
C. Estoppel
In their Opposition, Defendants Tokuda and Shen argue that
Plaintiff cannot pursue its claims because of the doctrine
of estoppel. As Tokuda and Shen explain, the doctrine of
estoppel has four elements: “(1) The party to be estopped
must be apprised of the facts; (2) he must intend that his
conduct shall be acted upon, or must so act that the party
asserting the estoppel had a right to believe it was so
intended; (3) the other party must be ignorant of the true
state of facts; and (4) he must rely upon the conduct to
his injury.” Skulnick v. Roberts Espress, Inc., 2 Cal. App.
4th 884, 890 (Cal.Ct.App. 1992). The reliance must be
reasonable. Martinez v. Scott Specialty Gases, Inc., 83
Cal. App. 4th 1236, 1238 (Cal.Ct.App. 2000) (holding that
“[e]stoppel requires, among other things, reasonable
reliance on the other party’s actions” and rejecting
estoppel where “plaintiffs could not reasonably have been
misled”).
Tokuda and Shen argue that Plaintiff is estopped from
enforcing the Proprietary Agreements because Plaintiff’s
CEO Jose Picazo allegedly informed Tokuda and Shen that the
Proprietary Agreements were mere formalities and would
never be enforced against them. Tokuda and Shen Opp. at 25.
As noted above, evidence of these assurances, provided in
paragraph 9 of the Tokuda Declaration and paragraph 49 of
the Shen Declaration, are barred by the parol evidence
rule. Indeed, the California Supreme Court has specifically
held that the doctrine of estoppel does not affect
application of the parol evidence rule. Casa Herrera, Inc.
v. Beydoun, 32 Cal. 4th 336, 347 n. 7 (Cal. 2004).
Therefore, this argument is unavailing.
Tokuda and Shen also argue that the elements of estoppel
are satisfied because Plaintiff “deceived the Individual
Defendants, with full knowledge of defendants’ activities,
and created an impression that Defendants’ activities were
authorized.” Tokuda and Shen Opp. at 25. Tokuda and Shen
argue that they “relied upon Iconix’s clear message that it
saw no conflict Page 10 between rockmyspace and the
[Shen’s and Tokuda’s] work at Iconix, and once they left
Iconix they poured time and money into RockYou. They did
not seek new jobs.” Id. at 26.
Tokuda and Shen argue that Iconix learned of the existence
of rockmyspace before Tokuda and Shen left Iconix. Tokuda
and Shen Opp. at 25. Specifically, Tokuda and Shen refer to
a conversation that Tokuda had with Bill Ames, Iconix’s
Vice President of Sales and Chief Operating Officer, in
late January, 2006, in which Tokuda “told Ames about
RockYou and showed him a presentation Tokuda had prepared.”
Tokuda and Shen Opp. at 20; Tokuda Decl. at ¶ 3. In
response, Plaintiff argues that this does not indicate that
Plaintiff was apprised of the facts. In his deposition,
Tokuda admitted that when he met with Ames, he failed to
mention that Shen was working on rockmyspace, that both
Shen and Tokuda had been working on rockmyspace on
Plaintiff’s computers; or that other of Plaintiff’s
employees worked on rockmyspace. Reply at 32; Vaughan Decl.
ISO Plaintiff’s Objections, Ex. A, 263-266 (Tokuda Dep.).
These are important facts, providing the basis for
Plaintiff’s claim against Shen and constituting some of the
allegations that give rise to Plaintiff’s causes of action
for Breach of Fiduciary Duty, Breach of Contract, and
Unfair Competition. FAC at ¶¶ 50, 59, 72.
Further, Tokuda and Shen argue that Plaintiff led them to
believe that Plaintiff “had no issue with their work on the
RockYou website.” Tokuda and Shen Opp. at 25. In support of
this understanding, Tokuda and Shen explain that, after
Tokuda told Ames about rockmyspace in late January, a) Ames
told Tokuda that he would help him find funding for
Tokuda’s company; b) Plaintiff entered into a consulting
contract with Tokuda so that Tokuda “could provide
continued service on demand”; and c) “[n]o one mentioned
any concern to [Tokuda] about the work [he] was doing on
the Rockmyspace website” (collectively, “Plaintiff’s
actions and inactions”) Tokuda Dec. at ¶¶
72-73. Tokuda and Shen cite to a rough, uncertified
deposition of Chief Financial Officer Bill Zager, which
explains that Plaintiff “had no desire to have a
relationship with Dr. Tokuda,” but “were deceiving” Tokuda
“to see how deceitful he would be.” Weinberg Decl., Ex. NN
96-97 (Rough Zager Dep.). Page 11
As noted above, any reliance on Plaintiff’s actions and
inactions must be reasonable to satisfy the standard for
estoppel. Martinez v. Scott Specialty Gases, Inc., 83 Cal.
App. 4th 1236, 1238 (Cal.Ct.App. 2000). Plaintiff argues
that any reliance by Defendants was unreasonable. Plaintiff
states that it terminated Shen on February 1, 2006, “after
learning of his involvement in rockmyspace.” Wilbur Decl.
at ¶ 42. Tokuda and Shen do not dispute this. To the
contrary, Shen states he “was told that [his] work for
someone other than Iconix (i.e. Net[p]ickle and the RockYou
website) was grounds for termination.” Shen at ¶ 63.
On March 13, 2006, Plaintiff wrote to Defendants “demanding
that they return the copyrighted materials and cease
operating the rockmyspace website.” Mot. at 14. Plaintiff
argues that “Shen cannot contend that it was reasonable for
him to rely on his understanding that Iconix saw `no
conflict’ when he was fired for that very conflict. If there
was any confusion on this point, it was extinguished six
weeks later, when Iconix sent its cease and desist letter.”
Reply at 33. Further, the Proprietary Agreements that
Tokuda and Shen both signed state, “This Agreement may not
be amended or waived except by a writing signed by me and
by a duly authorized representative of the Company other
than me. Failure to exercise any right under this Agreement
shall not constitute a waiver of such right.” Kuwayti
Decl., Ex. 1 ¶ 13, Ex. A, ¶ 11, Ex. B,
¶ 11. This too weighs against the reasonableness of
any reliance that Tokuda and Shen may have had upon
Plaintiff’s actions and inactions.
In sum, the Court finds that Tokuda and Shen have failed
to satisfy the elements of estoppel, by failing to prove
that Plaintiff was “apprised of the facts” at the time
Plaintiff allegedly induced reliance on its actions and
inactions and by failing to prove that their reliance on
these actions and inactions was reasonable. Thus, the Court
finds that Tokuda and Shen’s arguments for estoppel are
unavailing.
D. Preliminary Injunction
For the reasons stated below, the Court GRANTS IN PART
Plaintiff’s Motion for Page 12 Preliminary
Injunction.[fn4] A party seeking a preliminary injunction
must show either: “(1) a Page 13 combination of probable
success on the merits and the possibility of irreparable
injury, or (2) that serious questions are raised and the
balance of hardships tips sharply in favor of the moving
party. These standards `are not separate tests but the
outer reaches of a single continuum.'” Stuhlbarg Int’l
Sales Co. v. John D. Brush & Co., Inc., 240 F.3d 832,
839-40 (9th Cir. 2001) (citation omitted).
1. Merits of the Claims
Plaintiff shows probable success on the merits of its
claims.
a. Breach of Fiduciary Duty
Plaintiff argues that Tokuda owed a fiduciary duty to
Plaintiff and its shareholders, which he breached.
i. Evidence that Tokuda Owed a Fiduciary Duty
Under California law, “an officer who participates in
management of the corporation, exercising some
discretionary authority, is a fiduciary of the corporation
as a matter of law. Page 14 Conversely, a `nominal’
officer with no management authority is not a fiduciary.”
GAB Business Services, Inc. v. Lindsey & Newsom Claim
Services, Inc., 83 Cal. App. 4th 409, 420-21 (Cal.Ct.App.
2000), overruled on other grounds, Reeves v. Hanlon, 33
Cal. 4th 1140 (Cal. 2004). “Whether a particular officer
participates in management is a question of fact.” Id. at
421. On balance, Plaintiff presents convincing evidence
that Tokuda owes a fiduciary duty to Plaintiff.
Tokuda and Shen argue that Tokuda “had no discretionary
authority” and “had to seek Mr. Wilbur’s [Vice President of
Marketing] and/or Mr. Zager’s [Chief Financial Officer and
General Counsel] approval for everything, including
contracts, hiring, and budget.” Tokuda and Shen Opp. at 33.
However, their citations for this assertion do not fully
support this statement. First, the excerpt from the Wilbur
Deposition cited by Tokuda and Shen states, in relevant
part:
Q. . . . Was it your understanding that Dr. Tokuda could
simply hire Jian Shen and the person identified as Ryo
without approval of anyone else?
A. I don’t know exactly what the procedure was. I know
that in general in our company we were — we went in
and out of this operating under budgets, where if you were
within that budget, you may have the authority to do a
certain amount of spending under that cap. Generally, with
hiring, I believe that there needed to be other people
involved .
Weinberg Decl., Ex. I, 147-48 (Wilbur Dep.). The Tokuda
Declaration states in relevant part,
I expected that I would be able to hire people within
budget and set the compensation for the employees who
reported to me. I later learned that I would not have the
authority to do either. I also believed that I would be
able to assess legal and other risks for the company when
engaging in long term strategies and that, ultimately, the
responsibility for decision making would be mine. This did
not happen at Iconix. . . .
Tokuda Decl. at ¶ 3.
By contrast, Plaintiff offers direct evidence of Tokuda’s
discretionary power that contradicts Tokuda and Shen’s
arguments: First, “Tokuda was the only person to interview
Jian Shen before he was hired.” Reply at 16 (citing Halpin
Decl., Ex. 9, 21-23). Second, “Tokuda hired the Romanian
engineering team, Gemini, and signed an amendment to their
agreement which bound Iconix for over a million dollars
without consulting anyone else at Iconix.” Id. (citing
Halpin Decl., Ex. 6, 353-54). In addition, as Vice
President of Engineering Tokuda Page 15 managed the entire
engineering department, “establish[ing] the overall
objectives and initiatives” of that department. Id. (citing
Halpin Decl., Ex. 3, 47 (Tokuda Dep.)). Most of Iconix’s
workers were in the engineering department, and these
workers reported directly to Tokuda. Id. (citing Halpin
Decl., Ex. 29, ICON015231. In February, 2005, this meant
that 16 of the company’s 24 employees and contractors
reported to Tokuda; this number grew over time. Id. (citing
Wan Decl., Ex. 29, ICON015231; Halpin Decl., Ex. 13,
65-66).
Tokuda argues that as of September, 2005, his role at
Iconix was nothing more than that of an “engineering line
manager.” Tokuda Decl. at ¶ 30. Plaintiff denies
this characterization, but argues that even if it were
true, it would not excuse Tokuda’s conduct: under
California law, “Even when an officer loses power or
authority, that officer still owes a fiduciary duty to the
corporation. To divest himself or herself of this duty, the
officer must resign the office.” GAB, 83 Cal. App. 4th at
421.
On balance, Plaintiff makes a convincing argument that
Tokuda was an officer of Plaintiff, with some discretionary
authority, who thus owed a fiduciary duty to Plaintiff.
Under California law, as an officer with a fiduciary duty,
Tokuda would have been required to exercise:
the most scrupulous observance of his duty, not only
affirmatively to protect the interests of the corporation
committed to his charge, but also to refrain from doing
anything that would work injury to the corporation, or to
deprive it of profit or advantage which his skill and
ability might properly bring to it, or to enable it to
make in the reasonable and lawful exercise of its powers.
Daniel Orifice Fitting Co. v. Whalen, 198 Cal. App. 2d 791,
800 (Cal.Ct.App. 1962) (quotation omitted). In Daniel
Orifice, the defendant was the corporate plaintiff’s chief
engineer and officer, charged with developing and improving
the corporation’s products. Id. at 796. The court held that
the defendant breached his duty to the corporation, when he
secretly “developed an improved version of [one of the
company’s products]” and, instead of turning this over to
the corporation, sought to open his own competing business
through which to sell and personally profit from the
improved product. Id. at 795-800. The court explained,
Page 16
There can be no doubt that [the defendant] breached his
duties as an officer of the respondent corporation. He was
an officer in charge of an important part of the
respondent’s business and at the same time he was creating
improvements to the respondent’s product, he was
concealing such improvements and stealthily doing all that
was necessary to set up a competing business.
Id. at 800.
ii. Evidence that Tokuda Breached his Fiduciary Duty
Plaintiff specifically argues that Tokuda breached his
fiduciary duty to Plaintiff by violating the corporate
opportunity doctrine, which
prohibits a fiduciary from acquiring, “in opposition to
the corporation, property in which the corporation has an
interest or tangible expectancy. . . . [A] corporate
opportunity exists when a proposed activity is reasonably
incident to the corporation’s present or prospective
business and is one in which the corporation has the
capacity to engage.”
Robinson, Leatham & Nelson, Inc. v. Nelson, 109 F.3d 1388,
1392 (9th Cir. 1997) (quoting Kelegian v. Mgrdichian, 33
Cal. App. 4th 982 (Cal.Ct.App. 1995). The Ninth Circuit
explained that “whether or not a corporate opportunity
exists is largely a question of fact to be determined from
the objective facts and surrounding circumstances existing
at the time the opportunity arises.” Id. at 1392 (citing
Kelegian v. Mgrdichian, 33 Cal. App. 4th 982 (Cal.Ct.App.
1995)).
Applying the corporate opportunity doctrine standard, with
respect to the first prong, Plaintiff argues that
rockmyspace is “not just `reasonably incident’ but directly
aimed at an area that Iconix was seeking to exploit, based
upon a feature that it was seeking to implement.” Mot. at
18. Evidence supporting this argument is discussed below.
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