Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_18-cv-01880/USCOURTS-casd-3_18-cv-01880-1/pdf.json

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

---

1 

 Case No. 18cv1880-L-WVG 

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 

PROTECTION CAPITAL, LLC, a 

Delaware limited liability company, 

Plaintiff, 

v. 

IP CO., LLC, a Georgia limited 

liability company; GLOCOM, INC., 

a Virginia Corporaiton, 

Defendants. 

CASE NO. 18cv1880-L-WVG 

ORDER GRANTING 

PLAINTIFF’S MOTION FOR 

PARTIAL SUMMARY 

JUDGMENT [DOC. 36] 

Pending before the Court is Plaintiff Protection Capital, LLC’s (“PPC”) 

Motion for Partial Summary Judgment, or in the Alternative, for an Order 

Treating Specified Facts as Established (“MSJ”) filed pursuant to Federal Rule of 

Civil Procedure 56. Doc. 36. Defendants IP Co., LLC (“IPCO”) and Glocom, 

Inc. (“Glocom”) opposed the MSJ on one ground. See Doc. 40. Pursuant to Civil 

Local Rule 7.1.d.1, the Court has decided this motion without oral argument. For 

the following reasons, the Court GRANTS PPC’s MSJ in its entirety. 

Background 

This case arises from IPCO’s failure to continue payments to PPC pursuant 

to a Convertible Promissory Note and a Note Purchase Agreement the two parties 

Case 3:18-cv-01880-L-WVG Document 56 Filed 01/28/20 PageID.<pageID> Page 1 of 9
2 

Case No. 18cv1880-L-WVG 

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

executed on April 30, 2007. Under the Note, IPCO had access to unsecured loans 

of up to a maximum aggregate balance of $500,000 between 2007 and 2012. 

Under the Purchase Agreement, IPCO and its affiliates were required to pay PPC 

five percent (5%) of all “products, proceeds and amounts received” with respect 

to the intellectual property identified in the Purchase Agreement. Between 2008 

and 2017, IPCO remitted the five percent (5%) owed to PPC under the Purchase 

Agreement without any form of protest or reservation of rights. 

In 2017, Glocom purchased all of IPCO’s membership interests with 

knowledge of IPCO’s continuing financial obligations to PPC under the Note and 

Purchase Agreement. PPC alleges that, after acquisition, Glocom instructed 

IPCO to breach its financial obligations to PPC under the Purchase Agreement. 

Due to IPCO’s failure to pay PPC since the Glocom acquisition, between 

$150,000 and $500,000 is owed by IPCO to PPC at minimum. PPC has since 

provided IPCO with written notice of default and demand for payment. 

 On August 8, 2018, PPC filed the original complaint against IPCO. 

Subsequently, the Court found good cause to grant PPC leave to amend its 

complaint twice. See Docs. 20, 26. PPC filed the operative Complaint on May 

31, 2019, alleging IPCO is liable for (1) Breach of Contract; (2) For an 

Accounting, and (3) For Declaratory Relief. See Doc. 31. 

On July 19, 2019, PPC filed the instant motion, seeking a grant of partial 

summary judgment with the following relief: (1) requiring IPCO to provide 

quarterly reports on revenues received by it, SIPCO, and other affiliates, and by 

any and all transferees of relevant patents, then remit five percent (5%) thereof to 

Protection Capital within thirty (30) days; (2) finding that IPCO owes PPC, 

through the end of calendar year 2018, the sum of $595,866.02 with interest 

thereon at the contract rate; (3) ordering that IPCO, SIPCO, other affiliates, and 

any and all transferees of the relevant patents to make available, at a reasonable 

time and location, the books and records of each company reflecting all revenue 

Case 3:18-cv-01880-L-WVG Document 56 Filed 01/28/20 PageID.<pageID> Page 2 of 9
3 

Case No. 18cv1880-L-WVG 

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

received from the intellectual property subject to the Purchase Agreement; and 

(4) declaring (a) the Purchase Agreement valid and enforceable; and (b) IPCO 

must report quarterly on revenues received by it, SIPCO, other affiliates, and 

transferees, then remit five percent (5%) thereof to PPC within 30 days. See Doc. 

36 at 2-3. The first two requests relate to PPC’s first claim for relief (Breach of 

Contract), the third request relates to PPC’s second claim for relief (For an 

Accounting), and the fourth request relates to PPC’s Declaratory Relief claim. 

See id. In opposition, IPCO solely contends that it has raised a genuine dispute 

of material fact with respect to unconscionability, IPCO’s thirteenth affirmative 

defense, pursuant to Cal. Civ. Code section 1670.5. See Doc. 40. This motion has 

been fully briefed and is ready for disposition. 

Legal Standard 

 Summary judgment is appropriate under Federal Rule of Civil Procedure 

56 "if the movant shows that there is no genuine dispute as to any material fact 

and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); 

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The party seeking summary 

judgment bears the initial burden of establishing the absence of a genuine issue 

of material fact. Celotex, 477 U.S. at 323. 

 Where “the party moving for summary judgment would bear the burden of 

proof at trial, it must come forward with evidence which would entitle it to a 

directed verdict if the evidence went uncontroverted at trial.” See C.A.R. Transp. 

Brokerage Co., Inc. v. Darden Restaurants, Inc., 213 F.3d 474, 480 (9th Cir. 

2000) (citations omitted). In this instance, the moving party must first establish 

that no genuine issue of fact exists on an issue material to its case. See id. 

 Conversely, where the moving party does not have the ultimate burden of 

persuasion at trial, it “has both the initial burden of production and the ultimate 

burden of persuasion on a motion for summary judgment.” Nissan Fire & Marine 

Ins. Co., Ltd. v. Fritz Companies, Inc., 210 F.3d 1099, 1102 (9th Cir. 2000) 

Case 3:18-cv-01880-L-WVG Document 56 Filed 01/28/20 PageID.<pageID> Page 3 of 9
4 

Case No. 18cv1880-L-WVG 

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

(citation omitted) (emphasis added). To satisfy its burden of production, the 

moving party must either produce evidence negating an essential element of the 

nonmoving party’s claim or show that the nonmoving party does not have enough 

evidence of an essential element to carry its ultimate burden of persuasion at trial. 

See Celotex, 477 U.S. at 331. As such, the moving party would be entitled to 

summary judgment as a matter of law if the nonmoving party does not present 

sufficient evidence to support its claim. See Anderson v. Liberty Lobby, Inc., 477 

U.S. 242, 249 (1986). 

 If the moving party fails to discharge its initial burden, summary judgment 

must be denied and the court need not consider the nonmoving party’s evidence. 

Adickes v. S.H. Kress & Co., 398 U.S. 144, 159–60 (1970). If the moving party 

meets the initial burden, the nonmoving party cannot defeat summary judgment 

merely by demonstrating “that there is some metaphysical doubt as to the material 

facts.” Matsushita Elect. Indus. Co., Ltd. v Zenith Radio Corp., 475 U.S. 574, 

586 (1986). Rather, the nonmoving party must “go beyond the pleadings” and by 

“the depositions, answers to interrogatories, and admissions on file,” designate 

“specific facts showing that there is a genuine issue for trial.” Celotex, 477 U.S. 

at 324 (quoting Fed. R. Civ. P. 56(e)). 

Discussion 

 In the instant motion, PPC seeks an order establishing that IPCO owes PPC 

$595,866.02 under the Purchase Agreement for revenues earned through calendar 

year 2018. Doc. 36-1 at 24. Although PPC challenged, inter alia, whether 

genuine issues of material facts existed related to multiple defenses raised by 

IPCO in its’ Answer1, IPCO only contests whether the Purchase Agreement is 

 

1 PPC contends that IPCO cannot present evidence creating a genuine issue of material fact as to any 

alleged lack of actual authority or its apparent authority to be bound to the Purchase Agreement as 

written and performed. See Doc. 36-1. PPC claims IPCO cannot show genuine issues of material fact 

exist concerning the following affirmative defenses: (1) Fraud, Duress, and Undue Influence; (2) 

Estoppel/Waiver; (3) Payment; (4) Lack of Consideration; (5) Failure of Condition Precedent; (6) 

Unclean Hands; and (7) Offset. See id. PPC also contends that the Note and Purchase Agreement 

Case 3:18-cv-01880-L-WVG Document 56 Filed 01/28/20 PageID.<pageID> Page 4 of 9
5 

Case No. 18cv1880-L-WVG 

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

unconscionable as a matter of law. As such, the Court finds that IPCO concedes 

to the validity of PPC’s other contentions raised in the instant motion and will 

only address the unconscionability issue. 

 “If the court as a matter of law finds the contract or any cause of the contract 

to have been unconscionable at the time it was made the court may refuse to 

enforce the contract[.]” Cal. Civil Code section 1670.5. Generally, the procedural 

and substantive signs of an unconscionable contract include onerous terms due to 

unequal bargaining power and one-sided results. Armendariz v. Found. Health 

Psychcare Servs., Inc., 99 Cal.Rptr.2d 745, 767 (2000). “The prevailing view is 

that [procedural and substantive unconscionability] must both be present in order 

for a court to exercise its discretion to refuse to enforce a contract or clause under 

the doctrine of unconscionability.” Id. (citing Stirien v. Supercuts, Inc., 60 

Cal.Rptr.2d 138, 145 (1997)). However, both elements need not apply with equal 

force; courts evaluate the overall impact of any procedural irregularities in 

contract formation and unreasonableness of the substantive terms on a sliding 

scale. Id. 

 PPC contends the Purchase Agreement is not unconscionable as a matter 

of law. Doc. 36-1 at 22. PPC provides that, at the time of contracting, the 

following circumstances existed: (1) both parties were sophisticated and wellrepresented; (2) the contract was executed after a three-month negotiation period; 

(3) it was possible that PPC would lose the unsecured $500,000 investment with 

no right of recourse against IPCO; (4) a significant likelihood of non-payment 

pursuant to the Purchase Agreement existed; and (5) the payment provision was 

plainly evident, not hidden, in the contract and honored for ten (10) years. Doc. 

36-1 at 23. As such, the Court finds that PPC has carried its burden to show that 

that IPCO does not have enough evidence to prove unconscionability at trial. 

 

violated neither California’s Usury Laws nor California’s Finance Lenders Law. See id. None of these 

contentions were challenged by IPCO in its’ opposition brief. See Doc. 40. Consequently, the Court 

GRANTS PPC’s motion on these grounds. 

Case 3:18-cv-01880-L-WVG Document 56 Filed 01/28/20 PageID.<pageID> Page 5 of 9
6 

Case No. 18cv1880-L-WVG 

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

 Procedural Unconscionability 

a. Representation

IPCO contends that a genuine issue exists as to whether Michael S. Kagnoff 

and James Robbins assumed an attorney-client or fiduciary relationship when 

they agreed to provide IPCO “strategic advice.” Doc. 40 at 22. “An attorneyclient relationship exists for purposes of the privilege whenever a person consults 

an attorney for the purpose of obtaining the attorney’s legal service or advice.” 

Kerner v. Superior Court, 141 Cal.Rptr.3d 504, 529 (2012) (citation omitted). 

However, “[i]t is settled that the attorney-client privilege is inapplicable where 

the attorney merely acts as a negotiator for the client, gives business advice or 

otherwise acts as a business agent.” Zurich Am. Ins. Co. v. Superior Court, 66 

Cal.Rptr.3d 833, 846 (2007) (citation omitted). IPCO provides no direct evidence 

that either Mr. Kagnoff or Robbins ever represented IPCO, its affiliates, or any 

IPCO’s principals. In fact, Mr. Kagnoff declares that, at the time of contracting, 

IPCO had an experienced and well-respected corporate transaction and securities 

attorney, Oliver Lee, as one of its principals. Doc. 36-4 at 2. Kagnoff also notes 

Mr. Lee’s business acumen, experience, and ability to protect IPCO’s interests 

during negotiations. Id. To the extent PPC’s principals offered IPCO any 

strategic business advice prior to execution of the Note and Purchase Agreement, 

no attorney-client relationship was created. Thus, the Court finds that no attorneyclient relationship commenced between PPC’s principals and IPCO and both 

parties were well represented during negotiations. Therefore, no procedural 

unconscionability existed on this ground. 

b. Bargaining Position

IPCO intimates that unequal bargaining power existed in negotiations 

because Mr. Robbins and Kagnoff were aware of IPCO’s dire financial position. 

Doc. 40 at 25. The Court interprets IPCO’s contention as it claiming its’ assent 

to the Purchase Agreement was procured by economic duress. “Economic duress 

Case 3:18-cv-01880-L-WVG Document 56 Filed 01/28/20 PageID.<pageID> Page 6 of 9
7 

Case No. 18cv1880-L-WVG 

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

can excuse an innocent party’s contractual obligations when the other contracting 

party does a wrongful act which is sufficiently coercive to cause a reasonably 

prudent person faced with no reasonable alternative to succumb to the 

perpetrator’s pressure.” Hicks v. PGA Tour, Inc., 897 F.3d 1109, 1119 (9th Cir. 

2018) (citations omitted). Economic duress exists when there is: “(1) a 

sufficiently coercive wrongful act on the part of the defendant; (2) no reasonable 

alternative on the part of the [party under duress]; (3) knowledge of the [party 

under duress]’s economic vulnerability; and (4) actual inducement to contract.” 

Tanner v. Kaiser Found. Health Plan, Inc., 2016 WL 4076116, at *4 (N.D. Cal. 

Aug. 1, 2016). 

The record indicates that IPCO was involved in several lawsuits 

challenging patents to various wireless mesh networking technologies prior to the 

initial meeting with PPC. Doc. 36-4 at 2. The record also reveals that PPC’s 

principals were aware that IPCO needed urgent funding for patent registrations, 

licensing activities, and ongoing litigation. Id. During the three months of 

negotiations, it became apparent that IPCO’s survival and its intellectual property 

was at risk. Id. However, IPCO has not presented evidence of any wrongful or 

coercive act committed by PPC in negotiation. Likewise, IPCO fails to set forth 

evidence that it had no reasonable alternative for financing besides PPC. 

Notwithstanding, while IPCO could be viewed as a vulnerable negotiating party, 

PPC risked losing the money the entire line of credit created under the Note if 

IPCO could not repay. Therefore, IPCO’s assent to the Note and Purchase 

Agreement was not obtained by economic duress. 

Accordingly, the Court finds that IPCO has not satisfied its burden to show 

a genuine issue exists as to procedural unconscionability here. 

Substantive Unconscionability 

a. Percentage Profit Sharing

IPCO also contends that the five percent (5%) gross profit-sharing 

Case 3:18-cv-01880-L-WVG Document 56 Filed 01/28/20 PageID.<pageID> Page 7 of 9
8 

Case No. 18cv1880-L-WVG 

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

provision of the Purchase Agreement is substantively unconscionable. Doc. 40 at 

27. IPCO first frames the percentage payment as an interest rate for the initial 

line of credit then frames the percent payment as the cost of legal services. Id. at 

27-29. Due to the Court’s finding above that no attorney-client relationship was 

created between PPC’s principals and IPCO, the Court only discusses the interest 

rate contention here. 

The California Supreme Court instructs that unconscionability “is a flexible 

doctrine,” that “requires more than just looking at one particular term in a 

contract, comparing it to a fixed benchmark, and declaring the term 

unconscionable.” De La Torre v. CashCall, Inc., 236 Cal.Rptr.3d 353, 364 

(2018). “An interest rate is the price charged for lending a particular amount of 

money to a given individual or entity.” Id. at 359. “[T]o declare an interest rate 

unconscionable means only that—under the circumstances of the case, taking into 

account the bargaining process and prevailing market conditions—a particular 

rate was overly harsh, unduly oppressive, or so one-sided as to shock the 

conscience.” Id. at 359, 366. 

IPCO fails to set forth evidence to show that the five percent gross profitsharing provision is either interest or unconscionable. The Note obligated IPCO 

to pay PPC the principal line-of-credit sum of up to $500,000, or a lesser amount 

if that amount was advanced, along with any “accrued and unpaid interest” at the 

rate of six percent (6%) per year before April 30, 2012. See Doc. 43 at 3. With 

that in mind, the five percent (5%) profit-sharing provision therefore could not 

act as interest here as it was not the price PPC charged for establishing the line of 

credit for IPCO. In fact, the Court believes the profit-sharing provision is more 

akin to a royalty fee than interest. Notwithstanding, it has not been shown that 

the provision unreasonably favors PPC or that its manifestation is unexpectedly 

harsh. During 2015-2017, IPCO paid PPC $2,000,246.30 under the profit-sharing 

provision only due to IPCO and SIPCO’s generation of $40,004,926.00 in 

Case 3:18-cv-01880-L-WVG Document 56 Filed 01/28/20 PageID.<pageID> Page 8 of 9
9 

Case No. 18cv1880-L-WVG 

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

intellectual property revenue. Doc. 43 at 5. The percentage payment is not 

variable. As such, IPCO has not established through evidence how keeping 95% 

of its’ gross profits is conscience shocking. Therefore, the Court finds the five 

percent (5%) profit-sharing provision is not substantively unconscionable. 

Conclusion 

For the foregoing reasons, the Court GRANTS PPC’s Motion for Partial 

Summary Judgment in its entirety. As such, the Court hereby orders as follows: 

(1) On the Breach of Contract claim, IPCO shall provide quarterly reports 

it has received since the 2018 year regarding the revenues of IPCO and 

SIPCO, other affiliates, and patent transferees and remit five percent 

(5%) thereof to PPC within thirty (30) days; 

(2) On the Breach of Contract claim, IPCO shall remit to PPC $595,866.02, 

with interest at the contract rate, to satisfy its 2018 financial obligations 

under the Purchase Agreement; 

(3) On the Accounting claim, IPCO, SIPCO, other affiliates, and any 

transferees of the relevant patents shall make available, at a reasonable 

time and location, the books and records of each company reflecting all 

revenue received from the intellectual property subject to the Purchase 

Agreement; and 

(4) The Court declares the Purchase Agreement valid and enforceable; 

thus, IPCO shall report quarterly on revenues received by it, SIPCO, 

other affiliates, and transferees, then remit five percent (5%) thereof to 

PPC within 30 days. 

Date: January 28, 2020 

Case 3:18-cv-01880-L-WVG Document 56 Filed 01/28/20 PageID.<pageID> Page 9 of 9