Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_16-cv-00929/USCOURTS-casd-3_16-cv-00929-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

LF CENTENNIAL LIMITED,

Plaintiff,

CASE NO. 16cv0929 JM(NLS)

ORDER DENYING MOTION FOR

v. PARTIAL SUMMARY JUDGMENT 

Z-LINE DESIGNS, INC.,

Defendant.

Plaintiff LF Centennial Limited (“LFCL”) movesfor partialsummary judgment

on its claim for a contractual audit. Defendant Z-Line Designs, Inc. (“Z-Line”)

partially opposes the motion. Pursuant to Local Rule 7.1(d)(1), the court finds the

matters presented appropriate for resolution without oral argument. For the reasons set

forth below, the court denies the motion for summary judgment. 

BACKGROUND

On April 18, 2016, LFCL, a British Virgin Islands corporation with its principal

place of business in Hong Kong, commenced this action by alleging three claims for

relief: (1) Breach of Contract; (2) Breach of the Covenant of Good Faith and Fair

Dealing; and (3) Accounting. Defendant Z-Line, a Nevada corporation with its

principal place of business in San Roman, California, answered the complaint on

June 15, 2016, and then filed an amended answer on July 6, 2016. 

Plaintiff’s claims arise from a licensing and royalties contract dispute. Whalen

Furniture Manufacturing, Inc. (“WFM”) wasthe original owner of two patents entitled

- 1 - 16cv0929

Case 3:16-cv-00929-JM-NLS Document 80 Filed 06/06/17 PageID.<pageID> Page 1 of 4
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

“Television Support and Mounting Kit,” U.S. Patent Nos. 8,079,311 and 8,191,485. 

(Compl. ¶8, 9). In 2013, LFCL acquired the assets of WFM, and WFM assigned the

patents to LFCL. (Compl. ¶10).

LFCL alleges that Z-Line violated the patents by making and selling infringing

television stands. On December 20, 2011, WFM filed a patent infringement action in

this judicial district (11cv2958 H(DHB)) against Z-Line for infringement of the ‘311

patent. On June 5, 2012, WFM commenced an action against Z-Line for infringement

of the ‘485 patent (12cv1341 H(DHB)). In July 2013, WFM, LFCL, and Z-Line

entered into a settlement and license agreement (the “Agreement”), resolving all claims

in both infringement actions. As a result of the earlier assignment, LFCL allegedly

holds all rights granted to WFM in the Agreement. 

Among other things, the Agreement required Z-Line to pay a 5% royalty on the

licensed products sold in the United States. (Compl. ¶19). The Agreement also

provided for an annual audit of the royalty payments by an agreed upon third party

accounting firm. (Compl. ¶22).

On April 15, 2015, counsel for LFCL allegedly contacted Z-Line and requested

an audit for six quarters beginning July 26, 2013, and ending December 31, 2014. 

LFCL recommended Grant Thornton LLP as the auditor and requested that Z-Line

either approve the auditor or propose a different auditor. (Compl. ¶27). On April 16,

2015, counsel for Z-Line responded that the Agreement only called for annual audits

and, therefore, it would only provide information for the period of July 26, 2013, to

July 26, 2014. Z-Line also informed LFCL that it would only provide the quantity of

licensed products sold, but not the dollar value of the products sold. (Compl. ¶29). 

LFCL now moves for partial summary judgment to obtain an audit pursuant to

the parties’ contractual relationship. The court notes that LFCL also moved for partial

summary judgment on Z-Line’s novation affirmative defense. That issue is now moot

because, on May 24, 2017, Z-Line voluntarily dismissed the novation affirmative

defense. 

- 2 - 16cv0929

Case 3:16-cv-00929-JM-NLS Document 80 Filed 06/06/17 PageID.<pageID> Page 2 of 4
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

DISCUSSION

Legal Standards

A motion for summary judgment shall be granted where “there is no genuine

issue asto any material fact and . . . the moving party is entitled to judgment as a matter

of law.” FED. R. CIV. P. 56(c); Prison Legal News v. Lehman, 397 F.3d 692, 698 (9th

Cir. 2005). The moving party bears the initial burden of informing the court of the

basis for its motion and identifying those portions of the file which it believes

demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett,

477 U.S. 317, 323 (1986). There is “no express or implied requirement in Rule 56 that

the moving party support its motion with affidavits or other similar materials negating

the opponent’s claim.” Id. (emphasis in original). The opposing party cannot rest on

the mere allegations or denials of a pleading, but must “go beyond the pleadings and

by [the party’s] own affidavits, or by the ‘depositions, answers to interrogatories, and

admissions on file’ designate ‘specific facts showing that there is a genuine issue for

trial.’” Id. at 324 (citation omitted). The opposing party also may not rely solely on

conclusory allegations unsupported by factual data. Taylor v. List, 880 F.2d 1040,

1045 (9th Cir. 1989). 

The court must examine the evidence in the light most favorable to the nonmoving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). Any doubt

asto the existence of any issue of material fact requires denial of the motion. Anderson

v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). On a motion for summary judgment,

when “‘the moving party bears the burden of proof at trial, it must come forward with

evidence which would entitle it to a directed verdict if the evidence were

uncontroverted at trial.’” Houghton v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)

(emphasis in original) (quoting International Shortstop, Inc. v. Rally's, Inc., 939 F.2d

1257, 1264-65 (5th Cir. 1991), cert. denied, 502 U.S. 1059 (1992)).

The Audit

While the parties are in general agreement that LFCL is contractually entitled to

- 3 - 16cv0929

Case 3:16-cv-00929-JM-NLS Document 80 Filed 06/06/17 PageID.<pageID> Page 3 of 4
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

conduct an audit to ascertain the accuracy of the royalty payments at issue, the parties

do not agree on the scope, terms, and conditions relevant to an audit. Moreover, the

parties are involved in a discovery dispute recently resolved by Magistrate Judge

Stormes. (Ct. Dkt. 78). The May 31, 2017 order resolved the discovery dispute

concerning the production of source documents necessary to conduct an adequate

royalty payment audit. Pursuant to that order, Z-Line has until August 18, 2017 to

produce the documents. 

In light of the limited opposition to conducting the contractual audit, the court

concludes that the evidentiary record supporting the motion for partial summary

judgment is inadequate at this point in time to comprehensively resolve the issues

presented. To the extent the parties dispute the scope, terms or conditions relevant to

the contemplated audit, the parties are instructed to bring such disputes before

Magistrate Judge Stormes. Accordingly, the court denies the motion for summary

judgment. 

IT IS SO ORDERED.

DATED: June 6, 2017

 Hon. Jeffrey T. Miller

 United States District Judge

cc: All parties

- 4 - 16cv0929

Case 3:16-cv-00929-JM-NLS Document 80 Filed 06/06/17 PageID.<pageID> Page 4 of 4