TOTAL RECALL TECHNOLOGIES v. LUCKEY VR LLC (2018)

MEMORANDUM **

Plaintiff appeals from summary judgment on its breach of contract claim against Defendants. It also appeals from the dismissal of its conversion and breach of implied covenant of good faith claims. We affirm in part and reverse and

remand in part.

1. The district court erred in concluding that state law governed the procedural question of whether Defendants can challenge Plaintiff’s authority to file this action. See Cuprite Mine Partners LLC v. Anderson, 809 F.3d 548, 554 (9th Cir. 2015). We remand for the district court to consider this question in the first instance under federal law, including the possible applicability of either Federal Rule of Civil Procedure 9(a)(1)(A) or 9(a)(1)(B). De Saracho v. Custom Food Mach., Inc., 206 F.3d 874, 878 (9th Cir. 2000). Specifically, the district court should consider whether the issue of a partner’s authorization to sue on behalf of a partnership is one of “capacity” within the meaning of Rule 9(a)(1)(A), or “authority” within the meaning of Rule 9(a)(1)(B), or whether there is some other basis on which Defendants can raise the issue. If the district court concludes that a partner’s authorization to sue on behalf of a partnership is an issue of “capacity” or “authority” under Rule 9(a), then it should determine whether Plaintiff offered facts sufficient to establish its authority or capacity to sue. The district court should also consider whether, even if Defendants could raise the issue, and even if Plaintiff’s attempted retroactive ratification was valid, the statute of limitations had already expired on Plaintiff’s claims.

2. The district court properly dismissed Plaintiff’s claim for conversion. Luckey’s alleged possession of the first prototype was not “wrongful” because Seidl voluntarily dispossessed himself of it by returning it to Luckey and never requested its return. See Tyrone Pac. Int’l, Inc. v. MV Eurychili, 658 F.2d 664, 666 (9th Cir. 1981), citing Hartford Fin. Corp. v. Burns, 96 Cal.App.3d 591, 598, 158 Cal.Rptr. 169 (1979).

3. The district court properly dismissed Plaintiff’s claim for breach of the implied covenant of good faith and fair dealing because the claim was based solely on the failure to perform express contractual duties. Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395, 272 Cal.Rptr. 387 (1990). We reject Plaintiff’s attempt to distinguish Careau on the basis that Luckey deliberately breached the contract. First, the plaintiff in Careau also alleged a deliberate breach. See id. at 1392, 272 Cal.Rptr. 387 (explaining that plaintiff alleged defendants gave a “deceitful and pretextual explanation for such refusal [to perform the contract]”). Second, Careau held that “absent those limited cases where a breach of a consensual contract term is not claimed or alleged, the only justification for asserting a separate cause of action for breach of the implied covenant is to obtain a tort recovery.” Id. at 1395, 272 Cal.Rptr. 387. Restated in the affirmative, when plaintiff is alleging breach of an express contractual term, as here, the only cognizable implied-duty claim is in tort. Recovery in tort requires the presence of a “special relationship,” such as that “between insurer and insured,” something the parties here, like those in Careau, do not have. Id. at 1400-01, 272 Cal.Rptr. 387.

AFFIRMED in part; REVERSED and REMANDED in part.

Each party shall bear its own costs on appeal.