Court Opinion

ID: 4552620
Source: CourtListenerOpinion
Date Created: 2020-07-31 20:02:24.199506+00
Date Added: 2024-06-11T13:09:03.747000
License: Public Domain

NOT FOR PUBLICATION                        FILED
                    UNITED STATES COURT OF APPEALS                        JUL 31 2020
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                              FOR THE NINTH CIRCUIT

SHENZHENSHI HAITIECHENG                         No.    18-16859
SCIENCE AND TECHNOLOGY CO.,
LTD., a Peoples Republic of China               D.C. No. 4:15-cv-00797-JST
corporation,

                Plaintiff,                      MEMORANDUM*

and

VIRTUE GLOBAL HOLDINGS LIMITED,
a business company incorporated in the
British Virgin Islands,

      Intervenor-Plaintiff-
      Appellant,

 v.

REARDEN, LLC, a California Limited
Liability Company; et al.,

                Defendants-Appellees.

                   Appeal from the United States District Court
                     for the Northern District of California
                     Jon S. Tigar, District Judge, Presiding

                       Argued and Submitted April 30, 2020
                            San Francisco, California

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: WALLACE, GRABER, and COLLINS, Circuit Judges.
Partial Concurrence and Partial Dissent by Judge COLLINS

        Intervenor-Plaintiff-Appellant, Virtue Global Holdings Ltd. (VGH), timely

appeals from the district court’s judgment in favor of Defendants-Appellees

Rearden, LLC; Rearden MOVA, LLC; MO2, LLC; and MOVA, LLC

(collectively, Rearden). The sole issue on appeal is whether the district court erred

in holding, after a bench trial, that Rearden was the rightful owner of the visual

effects technology known as MOVA Contour Reality Capture or MOVA (MOVA).1

Although the Federal Circuit previously had exclusive appellate jurisdiction over

this case, see In re Rearden LLC, 841 F.3d 1327, 1332–33 (Fed Cir. 2016), we now

have jurisdiction under 28 U.S.C. section 1291. See Breed v. Hughes Aircraft Co.,

253 F.3d 1173, 1179 (9th Cir. 2001), citing Gronholz v. Sears, Roebuck & Co., 836
F.2d 515, 518 (Fed. Cir. 1987). We affirm.

        The district court did not abuse its discretion in rejecting VGH’s unclean

hands defense. See Seller Agency Council, Inc. v. Kennedy Ctr. for Real Estate

Educ., Inc., 621 F.3d 981, 986 (9th Cir. 2010). The district court’s finding that there

was no evidence at trial revealing that VGH “relied on statements or omissions by

Rearden or [Steve] Perlman” was not clearly erroneous. Any unconscientious

conduct on Rearden’s part therefore did not “directly ‘infect[]’ the actual cause of

1
    Rearden voluntarily dismissed its cross-appeal in case no. 18-16951.

                                           2
action before the court.” Pond v. Ins. Co. of N. Am., 198 Cal. Rptr. 517, 522 (Ct.

App. 1984).

      The district court did not abuse its discretion in concluding that Gary Lauder’s

reliance on Perlman’s statement was irrelevant for purposes of the unclean hands

defense. That Perlman falsely told Lauder that he intended for Lauder to give

MOVA to Greg LaSalle and Ken Pearce does not support an unclean hands defense

because the defense only “applies to conduct between the litigants themselves, not

to conduct of a litigant towards a non-party.” Mesnick v. Caton, 228 Cal. Rptr. 779,

787 (Ct. App. 1986).2 Perlman’s “soiled hands” only affected Lauder and did not

2
 The dissent would remand to the district court to decide in the first instance whether
the in pari delicto doctrine disentitles Rearden of the “affirmative relief” the district
court ordered: VGH’s surrender of the MOVA assets. But neither party raised this
theory before the district court, and neither party has referenced this theory on
appeal. We therefore cannot reach it. See United States v. Sineneng-Smith, 140 S.
Ct. 1575, 1581 (2020) (reminding us of our passive role as one ordinarily limited to
the party-presented controversy); Martinez-Serrano v. INS, 94 F.3d 1256, 1259-60
(9th Cir. 1996) (holding that issues not specifically raised and argued in a party’s
opening brief are waived).

In any event, the district court’s factual findings foreclose application of the in pari
delicto doctrine in this case. The district court found that Perlman did not mislead
LaSalle, VGH, or any of VGH’s predecessors in interest. By contrast, the district
court found that LaSalle intentionally worked to cut Rearden out of the deal and
obtain the MOVA Assets for himself even though he knew his actions violated his
obligations to Rearden. The district court’s determination that VGH and its
predecessors were more culpable actors than Perlman was not clearly erroneous.
Based on these findings, the district court did not abuse its discretion in denying
VGH’s unclean hands defense. See Tri-Q, Inc. v. Sta-Hi Corp., 404 P.2d 486, 497
(Cal. 1965) (observing that the in pari delicto defense does not apply to bar relief

                                           3
“affect the equitable relations between the litigants.” Pond, 198 Cal. Rptr. at 522.

      Even if the parties did not litigate the veracity of Perlman’s testimony before

trial, the district court, as the trier of fact, did not violate VGH’s right to due process

when it discredited a portion of his testimony. This is not a case in which the district

court resolved the case using “evidence that [was] only tangentially related to the

issues actually pleaded prior to trial . . . .” Consol. Data Terminals v. Applied Digital

Data Sys., Inc., 708 F.2d 385, 396 (9th Cir. 1983). Instead, the central issue

remained the same from the pleading stage through trial: whether LaSalle was

authorized to purchase MOVA on his own behalf or whether he purchased MOVA

on Rearden’s behalf only to sell it later for his own benefit. That the district court

discredited a portion of Perlman’s testimony and credited Lauder’s was not a due

process violation but a permissible view of the evidence.

      We need not decide whether the district court erred in concluding that LaSalle

was required to manage MOVA for the benefit of Rearden under the Proprietary

Information and Inventions Agreement (Agreement). The district court found that

the Original MO2 was a subsidiary of Rearden such that LaSalle lacked control over

it. VGH failed to challenge this finding, i.e., argue that the finding was clearly

unless the parties “are truly in pari delicto”); see also Norwood v. Judd, 209 P.2d
24, 31 (Cal. 1949).

                                            4
erroneous, until its reply brief. The argument is therefore waived. See Zamani v.

Carnes, 491 F.3d 990, 997 (9th Cir. 2007) (citation omitted). Even if the argument

was not waived, the district court’s factual finding was not clearly erroneous.

      Finally, the district court did not clearly err in finding that VGH and its

predecessors knew that LaSalle did not own MOVA Assets when they bought it from

LaSalle. Although the district court could have interpreted the evidence to find that

VGH and its predecessors knew only of Perlman’s claimed ownership of MOVA

and that a dispute over MOVA’s ownership existed, the objective evidence and the

witnesses’ testimony did not compel such a finding. See Anderson v. City of

Bessemer City, 470 U.S. 564, 575 (1985).

      AFFIRMED.

                                          5
                                                                            FILED
                                                                             JUL 31 2020
Virtue Global Holdings Ltd. v. Rearden, LLC, No. 18-16859                MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

COLLINS, Circuit Judge, concurring in the judgment in part and dissenting in part:

      I agree that the district court properly rejected the causes of action asserted

by Intervenor-Plaintiff Virtue Global Holdings Limited (“VGH”), but I would

vacate the district court’s judgment to the extent that it grants affirmative relief to

Defendants-Counterclaimants Rearden, LLC; Rearden MOVA, LLC; MO2, LLC;

and MOVA, LLC (collectively, “Rearden”). Accordingly, I respectfully concur in

the judgment in part and dissent in part.

      1. The district court specifically found that “Perlman set up” MO2 by

directing LaSalle to work with Rearden attorney Kalin in establishing MO2; that

Perlman did so “to create a new subsidiary of Rearden”; that LaSalle knew that this

was Perlman’s intention; that therefore “MO2 was owned by Rearden LLC as of

the date of its formation”; and that “LaSalle’s actions in acquiring MOVA for

MO2 were performed under his Employment Agreements with Rearden.” Taken

together, these findings establish that LaSalle acted as Rearden’s agent in setting

up MO2 and in acquiring the MOVA assets for MO2. See Brown v. USA

Taekwondo, 253 Cal. Rptr. 3d 708, 734 (Cal. Ct. App. 2019) (“Agency is the

relationship which results” when the principal “indicate[s] that the agent is to act

for him” and the agent “agree[s] to act on his behalf and subject to his control.”

(simplified)). The district court therefore did not err in concluding that Rearden
owned the MOVA assets, not VGH. That alone is sufficient to defeat VGH’s

claims of ownership, without regard to whether the additional specific terms of the

Proprietary Information and Inventions Agreement (“PIIA”) would also have

defeated VGH’s theory of ownership.1

      Beyond that, I agree with the majority that the district court’s findings did

not involve a violation of VGH’s due process rights, see Memo. Dispo. at 4, and I

also agree that the district court, as the trier of fact, permissibly concluded that

VGH and its predecessors knew that LaSalle did not own the MOVA assets, see id.

at 5. Because all of VGH’s challenges to the district court’s judgment rejecting

VGH’s affirmative claims are thus without merit, I agree that the district court’s

judgment should be affirmed in that respect.

      2. I respectfully dissent, however, from the majority’s holding that the

district court’s application of the unclean-hands doctrine did not amount to an

1
  I therefore agree with the majority’s result on this issue, but I very much disagree
with its rationale, which rests on the flawed theory that VGH “waived” this issue.
Although VGH’s opening brief packages its discussion of the ownership issue in a
section devoted to arguing that Rearden “waived” its rights to the MOVA assets,
that discussion unmistakably contends that “MO2 was not established as part of
Rearden but instead for the benefit of LaSalle” and that “LaSalle and his Original
MO2—not Perlman or Rearden—obtained ownership of the MOVA assets in
February 2013.” In my view, the majority relies on a “Simon Says” approach to
issue preservation that is much too strict.

                                            2
abuse of discretion. 2 “A legal error is an abuse of discretion,” Tattersalls, Ltd. v.

DeHaven, 745 F.3d 1294, 1297 (9th Cir. 2014), and in my view the district court

did not apply the correct legal standards in resolving this issue.

      The district court found, and the majority agrees, that unclean hands does

not apply here because Perlman’s fraud was directed at Lauder, a third party, and

not at LaSalle or the corporate entities who bought the MOVA assets from him.

See Memo. Dispo. at 2–3. While it is generally true under California law that the

doctrine of unclean hands is not applicable where only a third party was injured,

see Brown v. Grimes, 120 Cal. Rptr. 3d 893, 908 (Cal. Ct. App. 2011) (a party

asserting unclean hands “‘must have been injured by the alleged wrongful

conduct’” (citation omitted)), that general principle is not dispositive where, as

here, both parties are participants in the wrongful conduct and the lawsuit asks the

court to resolve their dispute about who owns the proceeds of that wrongful

conduct. In that particular scenario, another aspect of “the doctrine of unclean

2
  Preliminarily, I note one oddity about the procedural posture in which this issue is
presented to us. The relief ordered by the district court included an order to VGH
to surrender the MOVA assets to Rearden, despite the fact that neither the
operative cross-complaint nor the judgment mentions any causes of action by
Rearden against VGH. But given that the resulting relief nonetheless did run
against VGH, that entity therefore has standing to raise the issue of unclean hands
as a basis for overturning that order, despite the lack of any such formal cause of
action against VGH. Indeed, although the parties disagree as to whether the
unclean-hands doctrine properly applies on the facts of this case, no party contends
that VGH lacks standing to raise the issue of unclean hands.

                                           3
hands” comes into play—namely, the in pari delicto doctrine. Jacobs v. Universal

Dev. Corp., 62 Cal. Rptr. 2d 446, 449 (Cal. Ct. App. 1997). Under that doctrine, a

court should not help parties who both have engaged in wrongful conduct to divide

the proceeds but should “‘leave them just where it finds them, to settle these

questions without the aid of the court.’” Brown, 120 Cal. Rptr. 3d at 908 (citation

omitted). Whether to apply these principles in any given case turns on a variety of

case-specific considerations. See Johnson v. Johnson, 237 Cal. Rptr. 644, 647–48

(Cal. Ct. App. 1987) (citing Norwood v. Judd, 209 P.2d 24 (Cal. Ct. App. 1949)).

In my view, the district court therefore legally erred in applying a per se rule that,

because the target of the fraudulent activity (Lauder) was a third party, unclean-

hands principles did not apply. 3

3
  I disagree with the majority’s conclusion that VGH forfeited any reliance on the
in pari delicto aspect of unclean-hands doctrine. The majority’s forfeiture analysis
rests on the premise that “neither party raised this theory before the district court,”
see Memo. Dispo. at 3 n.2, but that contention is factually inaccurate. After the
district court failed to explicitly address VGH’s unclean-hands defense in its
statement of decision, VGH specifically noted the oversight and argued that
unclean hands barred Rearden’s requests for affirmative relief under the well-
settled rule that “‘where two or more have entered into a fraudulent scheme for the
purpose of obtaining property in which all are to share, and the scheme has been
carried out so that all the results of the fraud are in the hands of one of the parties,
a court of equity will not interfere on behalf of the others to aid them in obtaining
their share, but will leave the parties in the position where they have placed
themselves.’” See D. Ct. Dkt. No. 439 at 5 (emphasis added) (citation omitted).
The district court rejected this argument based solely on the ground that VGH had
not been injured by the fraud, and that was legal error for the reasons that I have
explained. It does not matter that VGH’s opening brief in this court does not use

                                           4
      The majority contends that, even if the district court erred in failing to apply

the correct legal principles to the unclean-hands issue, no remand is necessary. See

Memo. Dispo. at 3 n.2. I disagree. Because application of the doctrine of unclean

hands, including in pari delicto principles, is committed to the sound discretion of

the trial court, see Robertson v. Superior Ct., 109 Cal. Rptr. 2d 650, 655 (Cal. Ct.

App. 2001) (citing Moss v. Moss, 128 P.2d 526, 528 (Cal. 1942)), the proper

course here is to “‘reverse the decision and remand the case to the district court to

exercise its discretion in light of the correct standard,’” Sierra Forest Legacy v.

Rey, 577 F.3d 1015, 1023 (9th Cir. 2009) (citation omitted). By instead taking

upon itself the task of applying the relevant standards to the district court’s factual

findings, the majority “overstep[s] the bounds of abuse of discretion review.” Id.

It may well be that the district court would reach the same conclusion on remand as

the majority does, but that is its call to make, not ours.

      Accordingly, while I agree that it is appropriate to uphold the denial of relief

the magic words “in pari delicto”; the substance of its unclean-hands argument on
appeal remains the same—namely, that Rearden’s misconduct bars it from relief
“‘however improper may have been the behavior’” of the opposing parties. See
Opening Brief at 27 (emphasis added) (citation omitted); see also Jacobs, 62 Cal.
Rptr. 2d at 449 (in pari delicto aspect of unclean-hands doctrine denies affirmative
relief to “one tainted with inequitableness or bad faith relative to the matter in
which he seeks relief, however improper may have been the behavior of the
defendant” (emphasis added) (citations and internal quotation marks omitted)).
The issue of unclean hands is properly before us, and it is our obligation to apply
the correct legal principles in answering it.

                                           5
to VGH based on the district court’s adverse rulings on the merits, I dissent from

the majority’s upholding of the grant of affirmative relief to Rearden without

appropriate consideration of unclean-hands principles. I would remand the case so

that the district court can decide in the first instance whether, in light of the

appropriate factors, Rearden’s participation in the wrongful conduct should

disentitle it to any relief from the courts. See Johnson, 237 Cal. Rptr. at 648.

                                            6