Cognimem Technologies, Inc. et al v. Paillet et al, No. 2:2013cv00915 - Document 13 (E.D. Cal. 2013)
Court Description: MEMORANDUM and ORDER granting Plaintiffs' Ex Parte Application for a Temporary Restraining Order (ECF No. 6). Accordingly, the 5/22/2013 hearing is vacated. Plaintiffs' motion for preliminary injunction is set for hearing on 6/4/2013 at 10:00 a.m. in Courtroom 7. The Temporary Restraining Order is to remain in effect until 6/4/2013. Signed by Chief Judge Morrison C. England, Jr. on 5/21/2013. (Deutsch, S)
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Cognimem Technologies, Inc. et al v. Paillet et al Doc. 13 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 12 COGNIMEM TECHNOLOGIES, INC., and BRUCE MCCORMICK, Plaintiffs, 13 MEMORANDUM ORDER v. 14 15 No. 2:13-cv-00915-MCE-CKD GUY PAILLET, et al., Defendants. 16 17 Presently before the Court is an Ex Parte Application for a Temporary Restraining 18 19 Order (“Application”) filed by Plaintiffs CogniMem Technologies, Inc. (“CogniMem”) and 20 Bruce McCormick (“McCormick”) (collectively “Plaintiffs”). (ECF No. 6.) Plaintiffs seek 21 the Court’s order enjoining Defendants Guy Paillet, Anne Menendez and General Vision 22 Services, Inc. (“Defendants”) from taking any actions not in accordance with the Bylaws 23 enacted for CogniMem on May 9, 2013, including removing Plaintiff McCormick as a 24 director, officer or employee of CogniMem and taking any actions to dissolve CogniMem. 25 For the reasons stated below, Plaintiffs’ Application is granted. 26 /// 27 /// 28 /// 1 Dockets.Justia.com BACKGROUND1 1 2 Plaintiffs are: (1) CogniMem Technologies Inc. (“CogniMem”), a Delaware 3 4 corporation with its principal place of business in Folsom, California, and (2) Bruce 5 McCormick, CogniMem’s shareholder, president and director. McCormick owns 33.91% 6 of CogniMem’s outstanding shares. On May 9, 2013, Plaintiffs filed their Complaint 7 alleging claims for (1) violation of the Anti-Cybersquatting Act, 15 U.S.C. § 1125(d); 8 (2) breach of fiduciary duty; (3) fraud; (4) declaratory relief; (5) violation of Cal. Bus. & 9 Prof. Code § 17200; and (6) conversion. The Complaint names the following 10 Defendants: (1) Guy Paillet, a 2.61% shareholder and former director of CogniMem; 11 (2) Anne Menendez, a 2.61% shareholder and former director of CogniMem; (3) General 12 Vision, Inc., a California corporation which owns 52.17% and allegedly controls 66.09% 13 of CogniMem’s shares; (4) Cognitive Silicon Group, Inc., a California corporation which 14 is a parent corporation of General Vision; and (5) Norlitech LLC, a California limited 15 liability company allegedly owned and controlled by Paillet and Menendez. Paillet and 16 Menendez are both officers and directors of General Vision and controlling shareholders 17 in Cognitive Silicon Group. CogniMem originally had four Board of Directors members: Plaintiff McCormick, 18 19 Defendant Paillet, Defendant Menendez, and Ivo Austin. On April 2, 2013, Austin, 20 Paillet and Menendez resigned from the Board as a result of serious disagreements with 21 McCormick, thus leaving McCormick as the sole director of CogniMem. On May 9, 22 2013, McCormick adopted CogniMem’s bylaws which, among other things, prescribed a 23 specific procedure for amending the bylaws and for calling annual and special 24 shareholder meetings. 25 /// 26 /// 27 1 28 Unless noted otherwise, the relevant facts are derived, at times verbatim, from Plaintiffs’ Complaint, filed on May 9, 2013 (ECF No. 1), and Plaintiffs’ instant Application. 2 1 On May 15, 2013, General Vision, as CogniMem’s majority shareholder, adopted 2 its own set of CogniMem’s bylaws, which set the Board’s size at three directors, and 3 appointed Menendez and Paillet as directors. On the same day, the newly-appointed 4 directors sent notice for the Board of Directors meeting to McCormick and set the 5 meeting for the next day, May 16, 2013 at 4 p.m. The meeting’s agenda included, inter 6 alia, removal of McCormick as CongiMem’s director and officer and dissolution of 7 CogniMem. To prevent those events from happening, Plaintiffs filed the instant TRO 8 request on May 15, 2013. 9 In their Application, Plaintiffs argue that the bylaws adopted by General Vision are 10 invalid, and that the actions of General Vision, Paillet and Menendez directed at 11 removing McCormick from corporate offices and dissolution of CogniMem are contrary to 12 law and are also prohibited by the bylaws adopted by McCormick for CogniMem on 13 May 9, 2013. Accordingly, Plaintiffs request a temporary restraining order enjoining 14 Defendants from removing McCormick from corporate offices at CogniMem, from 15 dissolving CogniMem and also from taking any other action contrary to the May 9, 2013 16 bylaws. On May 16, 2013, the Court issued an Order setting this matter for hearing on 17 May 22, 2013, directing Defendants to file an opposition to Plaintiffs’ Application no later 18 than May 20, 2013, at 12:00 p.m., and directing Plaintiffs to file a response no later than 19 May 21, 2013, at 12:00 p.m. (ECF No. 8.) Pending the hearing, to preserve the status 20 quo and to prevent irreparable harm to Plaintiffs, the Court enjoined any actions by 21 Defendants directed at removing McCormick from corporate offices at CogniMem and 22 dissolving CogniMem. (Id.) 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 3 1 To date, Defendants have not filed an opposition to Plaintiffs’ Application. 2 However, on May 20, 2013, Ivo Austin, who appears to represent Defendant General 3 Vision, informed the Court by email that “Defendants in the above-captioned action will 4 not oppose Plaintiffs’ Ex Parte Motion for Temporary Restraining Order.” Defendants 5 have not responded to the Court’s subsequent request to file a formal statement of non- 6 opposition to Plaintiffs’ Application.2 7 STANDARD 8 9 The purpose of a temporary restraining order is to preserve the relative positions 10 of the parties—the status quo—until a trial on the merits can be conducted. Granny 11 Goose Foods, Inc. v. Teamsters, 415 U.S. 423, 438-39 (1974) (temporary restraining 12 orders “should be restricted to serving their underlying purpose of preserving the status 13 quo and preventing irreparable harm just so long as is necessary to hold a hearing, and 14 no longer”); LGS Architects, Inc. v. Concordia Homes of Nev., 434 F.3d 1150, 1158 (9th 15 Cir. 2006) (quoting Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981)). Issuance of 16 a temporary restraining order as a form of preliminary injunctive relief “is an 17 extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is 18 entitled to such relief.” Winter v. Natural Res. Defense Council, 555 U.S. 7, 22 (2008). 19 Plaintiffs have the burden of proving the propriety of such a remedy by clear and 20 convincing evidence. See Mazurek v. Armstrong, 520 U.S. 968, 972 (1997); Granny 21 Goose, 415 U.S. at 441. The propriety of a temporary restraining order hinges on a 22 significant threat of irreparable injury that must be imminent in nature. Caribbean Marine 23 Servs. Co. v. Baldridge, 844 F.2d 668, 674 (9th Cir. 1988). 24 /// 25 /// 26 /// 27 2 28 In the absence of any opposition from Defendants, the Court has determined that this matter is suitable for a decision without oral argument. See E.D. Cal. R. 230(g). 4 1 In general, the showing required for a temporary restraining order is the same as 2 that required for a preliminary injunction. Stuhlbarg Int’l Sales Co., Inc. v. John D. Brush 3 & Co., Inc., 240 F.3d 832, 839 n.7 (9th Cir. 2001). A plaintiff seeking a temporary 4 restraining order must establish that he is (1) “likely to succeed on the merits;” (2) “likely 5 to suffer irreparable harm in the absence of preliminary relief;” (3) “the balance of 6 equities tips in his favor;” and (4) “a preliminary injunction is in the public interest.” Sierra 7 Forest Legacy v. Rey, 577 F.3d 1015, 1021 (9th Cir. 2009) (citing Winter, 555 U.S. at 8 20); see also Am. Trucking Ass’ns, Inc. v. City of L.A., 559 F.3d 1046, 1052 (9th Cir. 9 2009) (adopting the preliminary injunction standard articulated in Winter)). “If a plaintiff 10 fails to meet its burden on any of the four requirements for injunctive relief, its request 11 must be denied.” Sierra Forest Legacy v. Rey, 691 F. Supp. 2d 1204, 1207 (E.D. Cal. 12 2010) (citing Winter, 555 U.S. at 22). “In each case, courts must balance the competing 13 claims of injury and must consider the effect on each party of the granting or withholding 14 of the requested relief.” Winter, 555 U.S. at 24 (quoting Amoco Prod. Co., 480 U.S. 531, 15 542 (1987). 16 Alternatively, under the so-called sliding scale approach, as long as the Plaintiffs 17 demonstrate the requisite likelihood of irreparable harm and show that an injunction is in 18 the public interest, a preliminary injunction can still issue so long as serious questions 19 going to the merits are raised and the balance of hardships tips sharply in Plaintiffs’ 20 favor. Alliance for Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011) 21 (concluding that the “serious questions” version of the sliding scale test for preliminary 22 injunctions remains viable after Winter). 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 5 1 ANALYSIS 2 A. Likelihood of Success on the Merits 3 4 The crux of Plaintiffs’ arguments in support of their Application is that General 5 Vision could not lawfully adopt a new set of bylaws for CogniMem and appoint Paillet 6 and Menendez to the Board because those actions are contrary to the May 9, 2013, 7 bylaws adopted for CogniMem by McCormick. Accordingly, Plaintiffs request the Court 8 declare that the bylaws adopted by General Vision are “null and void ab initio”’ and 9 enjoin Defendants from taking any action contrary to the May 9, 2013, bylaws, including 10 removing McCormick from corporate offices at CogniMem and dissolving CogniMem. 11 (ECF No. 6.) 12 Section 109(b) of the Delaware General Corporation Law (“GCL”) provides: 13 After a corporation . . . has received any payment for any of its stock, the power to adopt, amend or repeal bylaws shall be in the stockholders entitled to vote. . . . Notwithstanding the foregoing, any corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors . . . The fact that such power has been so conferred upon the directors or governing body, as the case may be, shall not divest the stockholders . . . of the power, nor limit their power to adopt, amend or repeal bylaws. 14 15 16 17 18 19 8 Del.C. § 109(a). Here, CogniMem’s Certificate of Incorporation provides, in relevant 20 part, that “the Board of Directors shall have the power to adopt, amend or repeal the by- 21 laws.” (Declaration of Bruce McCormick (“McCormick Decl.”) Ex. 1; ECF No. 6-4.) 22 Accordingly, Plaintiff McCormick as CogniMem’s sole remaining director could adopt 23 bylaws for CogniMem. 24 /// 25 /// 26 /// 27 /// 28 /// 6 1 The May 9, 2013, bylaws adopted by McCormick for CogniMem contain the 2 following relevant provisions: (1) the number of directors is set at one, subject to change 3 pursuant to resolution approved by 67% of CogniMem’s stockholders; (2) the bylaws 4 may be amended or repealed at any annual meeting of the stockholders by a vote of 5 67% of the shares represented and entitled to vote at such meeting, or by a unanimous 6 vote of the Board of Directors; (3) special meetings of the stockholders may be called by 7 the Board of Directors, the Chief Executive Officer, or by the stockholders holding not 8 less than 67% of the voting power of the corporation; and (4) written notice of each 9 meeting of stockholders shall be given to each stockholder entitled to vote at the 10 meeting not less than thirty not more than sixty days before such meeting. (McCormick 11 Decl & Ex. 3.) 12 Shortly after the adoption of CogniMem’s bylaws by McCormick, Defendant 13 General Vision, as a majority shareholder of CogniMem, attempted to enact its own set 14 of bylaws for CogniMem, set the size of the Board of Directors at three directors, and 15 appoint Defendants Paillet and Menendez as directors. (Declaration of Brent Lawrence 16 (“Lawrence Decl.”) ¶ 5 & Exs. 4, 5; ECF No. 6-3.) Defendants then set a Board of 17 Directors meeting for the next day, May 16, 2013. (Lawrence Decl. ¶ 6 & Ex. 4.) The 18 meeting’s agenda included, among other things, removal of McCormick from all 19 corporate offices at CogniMem and dissolution of CogniMem. (Id.) 20 As mentioned above, the Delaware GCL provides that the delegation of authority 21 to adopt, amend or repeal bylaws to the board of directors “shall not divest the 22 stockholders . . . of the power, nor limit their power to adopt, amend or repeal bylaws.” 23 8 Del.C. § 109(a). However, relevant for the purposes of Plaintiffs’ instant Application, 24 Section 228(a) of the GCL provides: 25 /// 26 /// 27 /// 28 /// 7 1 Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted . . . . 2 3 4 5 6 7 8 Del. C. § 228(a) (emphasis added). Pursuant to the May 9, 2013, bylaws adopted for 8 CogniMem by McCormick, CogniMem’s bylaws may be amended or repealed at any 9 annual meeting of the stockholders by a vote of 67% of the shares represented and 10 entitled to vote at such meeting, or by a unanimous vote of the Board of Directors. 11 (McCormick Decl. ¶ 10 & Ex. 3.) As demonstrated by the documents submitted in 12 support of Plaintiffs’ Application, General Vision owns only 52.17% of CongiMem’s 13 shares, which is insufficient to amend or repeal CogniMem’s bylaws by a shareholders’ 14 written consent. (See McCormick Decl. ¶ 4.) Therefore, Defendant General Vision 15 could not amend or repeal the May 9, 2013, bylaws adopted for CogniMem by 16 McCormick. 17 Accordingly, in the absence of any contrary argument from Defendants, the Court 18 concludes that Plaintiffs have carried their burden of demonstrating that they are likely to 19 prevail on the merits of their claims for relief, see Sierra Forest Legacy, 577 F.3d at 20 1021, or, at the very least, raised “serious questions going to the merits” of those claims. 21 Alliance for Wild Rockies, 632 F.3d at 1134-35. 22 23 B. Irreparable Injury 24 25 To be entitled to a temporary restraining order, a plaintiff must demonstrate 26 immediate threatened injury. Caribbean Marine Servs. Co., Inc. v. Baldridge, 844 F.2d 27 668, 674 (9th Cir. 1988). Indeed, a plaintiff “must demonstrate potential harm which 28 cannot be redressed by a legal or an equitable remedy following a trial.” 8 1 Ft. Funston Dog Walkers v. Babbitt, 96 F.Supp.2d 1021, 1039 (N.D. Cal. 2000) (citation 2 omitted). “The preliminary injunction must be the only way of protecting the plaintiff from 3 harm.” Id. Generally, the “possibility that adequate compensatory or other corrective 4 relief will be available at a later date, in the ordinary course of litigation, weighs heavily 5 against a claim of irreparable harm.” Sampson v. Murray, 415 U.S. 61, 90 (1974) 6 (citation omitted). 7 Here, Plaintiffs argue that, in the absence of injunctive relief, Plaintiff McCormick 8 “would suffer irreparable harm in that he has invested $1.7 million in CogniMem . . . and 9 would have no ability to prevent the defendants from devaluing and dissolving the 10 corporation, as they have threatened to do.” (ECF No. 6 at 8.) Although a claim of 11 monetary losses, without more, is not sufficient to demonstrate an irreparable injury, a 12 showing that a company’s very business existence is threatened is sufficient to show 13 irreparable harm. See Am. Passage Media Corp. v. Cass Commc’ns, Inc., 750 F.2d 14 1470, 1474 (9th Cir. 1985) (suggesting that the irreparable injury requirement would be 15 satisfied if plaintiff demonstrates that it is “threatened with extinction” or with “being 16 driven out of business”). Here, the very existence of Plaintiff CogniMem is threatened in 17 the absence of injunctive relief. 18 Additionally, Plaintiffs have sufficiently demonstrates that, in the absence of 19 injunctive relief, they will suffer damages to the goodwill of their business and would lose 20 certain intellectual property rights, including rights to a registered trademark 21 “CogniMem,” which Defendants are allegedly trying to divert to themselves. (ECF No. 6 22 at 8.) The losses alleged by Plaintiffs amount to “irreparable harm” for the purposes of 23 issuing injunctive relief. See, e.g., Rent-A-Center, Inc. v. Canyon Television and 24 Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir.1991); Stuhlbarg Int'l Sales Co. v. 25 John D. Brush & Co., 240 F.3d 832, 841 (9th Cir.2001); Metro-Goldwyn-Mayer Studios, 26 Inc. v. Grokster, Ltd., 518 F.Supp.2d 1197, 1215-19 (C.D. Cal. 2007). 27 28 Accordingly, the Court concludes that Plaintiffs are likely to suffer irreparable harm in the absence of injunctive relief. 9 1 C. Balance of Equities and Consideration of Public Interest 2 3 In deciding whether to grant an injunction, “courts must balance the competing 4 claims of injury and must consider the effect on each party of the granting or withholding 5 of the requested relief . . . pay[ing] particular regard for the public consequences in 6 employing the extraordinary remedy of injunction.” Winter, 555 U.S. at 9. Here, while 7 Plaintiffs would suffer irreparable injury in the absence of a temporary restraining order, 8 Defendants would not suffer any harm by maintaining the status quo. Further, because 9 a temporary restraining order’s reach is narrow and affects only the parties with no 10 impact on nonparties, “the public interest will be at most a neutral factor in the analysis 11 rather than one that factors granting or denying the preliminary injunction.” See 12 Stormans, Inc. v. Selecky, 586 F.3d 1109, 1138-39 (9th Cir. 2009). 13 In sum, in the absence of any arguments to the contrary from Defendants, the 14 Court finds that Plaintiffs have carried their burden of demonstrating entitlement to a 15 temporary restraining order. 16 17 CONCLUSION 18 19 20 21 For the reasons stated above, Plaintiffs’ Ex Parte Application for a Temporary Restraining Order (ECF No. 6) is hereby GRANTED as follows: 1. Defendants are hereby enjoined from taking any actions to remove Plaintiff 22 McCormick as a director, officer, or employee of CogniMem, taking any actions to 23 dissolve CogniMem, or taking any other actions not in accordance with CogniMem’s 24 Bylaws enacted on May 9, 2013. 25 26 27 28 2. Plaintiffs are directed to file a motion for preliminary injunction and any supporting documents no later than May 24, 2013, at 4:00 p.m. 3. Defendants are directed to file an opposition to Plaintiffs’ motion for preliminary injunction no later than May 29, 2013, at 4:00 p.m. 10 1 4. Plaintiffs may file a response no later than May 31, 2013, at 4:00 p.m. 2 5. The hearing on Plaintiffs’ motion for preliminary injunction is hereby set for 3 4 5 6 June 4, 2013, at 10:00 a.m. in Courtroom 7. 6. The parties’ failure to comply with the briefing schedule set forth above will result in further orders by this court, including, but not limited to, terminating sanctions. 7. The Temporary Restraining Order is to remain in effect until June 4, 2013. 7 If Plaintiffs fail to move for a preliminary injunction as directed above, the Court will 8 vacate the instant Temporary Restraining Order without further notice to the parties. 9 10 11 12 8. The hearing on Plaintiffs’ Application for a Temporary Restraining Order currently set for May 22, 2013, is hereby VACATED. IT IS SO ORDERED. DATED: May 21, 2013 13 14 15 ___________________________________________ MORRISON C. ENGLAND, JR., CHIEF JUDGE UNITED STATES DISTRICT COURT 16 17 18 19 20 21 22 23 24 25 26 27 28 11
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