Case 2:04-cv-09049-DOC-RNB Document 8423 Filed 08/02/10 Page 1 of 41 Page ID #:268640 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE CENTRAL DISTRICT OF CALIFORNIA 10 11 CARTER BRYANT, ) CASE NO. CV 04-9049 DOC (RNBx) ) 12 Plaintiff, ) ) O R D E R ON MOTIONS TO 13 v. ) DISMISS ) 14 MATTEL, INC., ) ) 15 Defendant. ) _________________________________ ) 16 ) AND CONSOLIDATED ACTIONS ) 17 ) _________________________________ ) 18 19 Barbie may thrive on competition, but did the Bratz thrive on racketeering? 20 *** 21 The following motions1 came before the Court for hearing on May 28, 2010: 22 23 24 25 26 1 The motions filed by MGA Entertainment, Inc., Isaac Larian, and MGAE de Mexico, in which Carlos Gustavo Machado Lopez joined, originally included arguments 27 seeking dismissal of one or more counterclaims pursuant to Fed. R. Civ. P. 56. By 28 Minute Order dated May 13, 2010, the Court struck as premature the submissions’ summary judgment arguments. Case 2:04-cv-09049-DOC-RNB Document 8423 Filed 08/02/10 Page 2 of 41 Page ID #:268641 1 (1) Counter-Defendants2 MGA Parties and IGWT 826’s Motion to Dismiss RICO and Creditor 2 Claims; (2) MGA Entertainment, Inc. and Isaac Larian’s Motion to Dismiss U.S.-Based Trade 3 Secret and Employee-Based State Law Tort Claims; (3) MGAE de Mexico’s Motion to Dismiss 4 for Lack of Personal Jurisdiction and on Ground of Forum Non Conveniens; (4) Carlos Gustavo 5 Machado Gomez’s Motion to Dismiss First Counterclaim;3 and (5) Omni 808 Investors, LLC’s 6 Motion to Dismiss. 7 Background 8 Mattel’s Fourth Amended Answer and Counterclaims (FAAC) brings seventeen 9 counterclaims arising under federal law and the laws of the state of California. The 10 counterclaims are predicated upon certain acts alleged to have been taken by MGA 11 Entertainment, Inc. (“MGA”), its founder and Chief Executive Officer Isaac Larian (“Larian”), 12 its Mexican subsidiary MGAE de Mexico (“MGA Mexico”), its Hong Kong subsidiary MGA 13 Hong Kong (“MGA HK”), its current and former employees including but not limited to Carter 14 Bryant (“Bryant”) and Carlos Gustavo Machado Gomez (“Machado”), its creditor Omni 808 15 Investors, LLC (“Omni”), and Omni’s creditor IGWT 826 (“IGWT”) over the last decade. In 16 broad terms, Mattel alleges that counter-defendants undertook to deprive Mattel of its 17 intellectual property, wrongfully solicit its employees’ services, misappropriate its confidential 18 and proprietary information, infringe its copyrights, secret assets, and obstruct justice. 19 MGA and Larian appealed from the Phase 1 post-trial orders and the Ninth Circuit 20 vacated the equitable relief issued after the first phase on July 22, 2010 with instructions. 21 Discussion4 22 23 2 Mattel is the Defendant to the action numbered CV 04-9049 and its 24 counterclaims are the subject of this order. However, this Order does not definitively identify the party(ies) that will be labeled Plaintiff(s) or Defendant(s) at the time of trial. 25 3 Defendant Carlos Gustavo Machado Gomez also joins in the MGA Parties’ and 26 IGWT 826’s Motion to Dismiss, MGA Entertainment, Inc. and Isaac Larian’s Motion to 27 Dismiss, and MGAE de Mexico’s Motion to Dismiss. 28 4 The Court declines to follow the sequence of argument in the parties’ briefing. 2 Case 2:04-cv-09049-DOC-RNB Document 8423 Filed 08/02/10 Page 3 of 41 Page ID #:268642 1 The FAAC’s seventeen counterclaims are: (1) violation of 18 U.S.C. §§ 1962(c) 2 and 1964(c); (2) violation of 18 U.S.C. §§ 1962(d) and 1964(c); (3) misappropriation of trade 3 secrets; (4) copyright infringement; (5) breach of contract; (6) intentional interference with 4 contract; (7) breach of fiduciary duty; (8) aiding and abetting breach of fiduciary duty; 5 (9) breach of duty of loyalty; (10) aiding and abetting breach of duty of loyalty; (11) conversion; 6 (12) unfair competition; (13) avoidance of actual fraudulent transfers; (14) avoidance of 7 constructive fraudulent transfers; (15) prohibited distributions; (16) breach of constructive trust; 8 and (17) declaratory relief. The named defendants are MGA, MGA Mexico, MGA HK, Larian, 9 Bryant, Machado, Omni, and IGWT (collectively “counter-defendants”). 10 I. Violation of 18 U.S.C. § 1964(c) Based on Violation of § 11 1962(c) (Substantive RICO) 12 The FAAC’s first counterclaim alleges that MGA, MGA Mexico, MGA HK, 13 Larian, Machado,5 and Does 6 through 10 violated section 1964(c) of the Racketeer Influenced 14 and Corrupt Organizations Act (“RICO”), which provides that “[a]ny person injured in his 15 business or property by reason of a violation of section 1962 of this chapter may sue therefor in 16 any appropriate United States district court and shall recover threefold the damages he sustains” 17 and other damages identified by the statute. 18 U.S.C. § 1964(c). Section 1962 provides that 18 “[i]t shall be unlawful for any person employed by or associated with any enterprise engaged in, 19 or the activities of which affect, interstate or foreign commerce, to conduct or participate, 20 directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering 21 activity or collection of unlawful debt.” 18 U.S.C. § 1962(c). 22 A. Person, Enterprise, and Distinctness 23 To establish liability under section 1962(c), one must prove the existence of a 24 (1) person who is “employed by or associated with” (2) an enterprise that is not simply the 25 “person referred to by a different name.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 26 27 5 For simplicity, the named counter-defendants to the first counterclaim are 28 collectively referred to as “the members.” 3 Case 2:04-cv-09049-DOC-RNB Document 8423 Filed 08/02/10 Page 4 of 41 Page ID #:268643 1 158, 161, 121 S. Ct. 2087 (2001). Mattel alleges that the members constituted an associated-in- 2 fact enterprise “engaged in a scheme to unlawfully compete with Mattel.” FAAC ¶ 123. The 3 members argue that Mattel fails to plead a valid enterprise because the association formed by 4 MGA, MGA’s employees, and MGA’s subsidiaries is no different from MGA. 5 A corporation is an “individual” for the purposes of § 1961(4). See United States 6 v. Blinder, 10 F.3d 1468, 1473 (9th Cir. 1993) (citing United States v. Feldman, 853 F.2d 648, 7 655-56 (9th Cir. 1988)). Thus, MGA can associate in fact with other “individuals” to form an 8 enterprise that is “not a legal entity.” Id.; see also 18 U.S.C. § 1961(4). But the enterprise 9 formed by MGA and these other “individuals” must be distinct from MGA, since MGA cannot 10 be “employed by or associated with” itself. King, 533 U.S. at 161-62. 11 Measuring distinctness is elementary if the enterprise is an individual (dissociative 12 personalities notwithstanding), tougher if the enterprise is a corporation, and hardest if the 13 enterprise is composed of individuals who form an association that is, by definition, “not a legal 14 entity.” 18 U.S.C. § 1961(4). Unlike the corporation – an entity King distinguished by its 15 “rights and responsibilities” under law – an associated-in-fact enterprise is conceptually slippery. 16 It lacks the features most groups possess: 17 [An associated-in-fact enterprise n]eed not have a hierarchical 18 structure or “chain of command”; [can make] decisions [] on an ad 19 hoc basis and by any number of methods - by majority vote, 20 consensus, a show of strength, etc. [Need not have] fixed roles [for 21 its members] . [Need not have] name, regular meetings, dues, 22 established rules and regulations, disciplinary procedures, or 23 initiation ceremonies. 24 Boyle v. United States, - - - U.S. - - -, 129 S.Ct. 2237, 2245-46 (2009). 25 Instead, an associated-in-fact enterprise is characterized by its purpose, the 26 relationships between its individual members, and its longevity. Id. at 2245. Each element 27 satisfies a different part of the RICO statute: an “enterprise” must have a purpose; an 28 “associat[ion]” needs relationships; and “affairs” cannot be conducted through a pattern of 4 Case 2:04-cv-09049-DOC-RNB Document 8423 Filed 08/02/10 Page 5 of 41 Page ID #:268644 1 racketeering activity unless the enterprise has sufficient longevity. Id. 2 The corporation’s purpose, relationships, and longevity subsume the purpose, 3 relationships, and longevity of an enterprise formed between the corporation and its employees 4 and/or subsidiaries. Thus, a corporation cannot be employed by or associated with an enterprise 5 composed of the corporation and its employees and/or subsidiaries. See Living Designs, Inc. v. 6 E.I. Dupont de Nemours & Co., 431 F.3d 353, 361 (9th Cir. 2005); Anatian v. Coutts Bank 7 (Switzerland) Ltd., 193 F.3d 85, 88-89 (2d Cir. 1999) (citing Riverwoods Chappaqua, 30 F.3d 8 339, 344 (2d Cir. 1994)); Gasoline Sales, Inc. v. Aero Oil Co., 39 F.3d 70, 73-74 (3d Cir. 1994) 9 (“[A] corporation generally cannot be a defendant under section 1962(c) for conducting an 10 ‘enterprise’ consisting of its own subsidiaries or employees, or consisting of the corporation 11 itself in association with its subsidiaries or employees.”);6 Bachman v. Bear Stearns & Co., Inc., 12 178 F.3d 930, 932 (7th Cir. 1999) (“A firm and its employees, or a parent and its subsidiaries, 13 are not an enterprise separate from the firm itself.”) (citing Emery v.