Case 3:15-cv-02281-WHA Document 255 Filed 03/07/19 Page 1 of 17
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`IN THE UNITED STATES DISTRICT COURT
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`FOR THE NORTHERN DISTRICT OF CALIFORNIA
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`TOTAL RECALL TECHNOLOGIES,
`Plaintiff,
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` v.
`
`PALMER LUCKEY and OCULUS VR,
`LLC, as successor-in-interest to Oculus
`VR, Inc.,
`
`Defendants.
` /
`
`No. C 15-02281 WHA
`
`ORDER GRANTING MOTION
`FOR SUMMARY JUDGMENT
`
`INTRODUCTION
`A partnership agreement between two individuals provided that no lawsuit would be
`maintained without the approval of both. Over the objection of one, the other brought a lawsuit
`in the name of the partnership against third parties. An earlier order dismissed the suit. After
`remand from our court of appeals, defendants renew their motion for summary judgment.
`Their motion for summary judgment is GRANTED.
`STATEMENT
`Prior orders set forth the facts of this case (Dkt. Nos. 179, 213). Briefly, in 2010, Ron
`Igra and Thomas Seidl formed a two-person partnership, Total Recall Technologies (“TRT”),
`with the goal of developing consumer virtual-reality technology. The partnership agreement
`gave each of the two partners veto power over any decision regarding TRT, and stated that “for
`any decision regarding the company Ron Igra and Thomas Seidl have to agree on any action
`[except for certain sales of a controlling interest in the partnership]” (Dkt. No. 133-2 ¶ 19). In
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`August 2011, Seidl entered into a written agreement with defendant Palmer Luckey to develop a
`prototype for a head-mounted virtual-reality display according to certain specifications supplied
`by Seidl. Luckey eventually formed Oculus LLC, which later re-registered as defendant Oculus
`VR, LLC, and sold to Facebook, Inc.
`Igra wanted to sue Luckey on the theory that Luckey had misappropriated Seidl’s ideas.
`Seidl, however, did not want to sue. In 2014, Igra commenced an action in Hawaii state court
`against Seidl, seeking to compel Seidl to authorize an action against Luckey in TRT’s name.
`Igra and Seidl continued to correspond, but Seidl maintained his objection to suing Luckey and
`Oculus (see Dkt. Nos. 179 at 2; 213 at 2–3).1
`In May 2015, with the Hawaii action still unresolved, Igra, using TRT’s name,
`commenced this action over Seidl’s objection here in federal court in San Francisco. After
`substantial motion practice, it became clear that Igra brought this action in TRT’s name without
`Seidl’s prior agreement. After discovery closed, an order stayed the action pending resolution
`of the Hawaii action but invited defendants to bring an early motion for summary judgment on
`whether this lawsuit had been properly authorized (Dkt. No. 149).
`In their motion, defendants contended that Igra lacked authority to pursue this action due
`to Seidl’s refusal to agree to sue (Dkt. No. 135). At no point did TRT respond by raising any
`arguments as to the applicability of the Rule 9(a) pleading standard. Instead, TRT argued that
`defendants had no “standing” to challenge TRT’s internal business processes (primarily relying
`on one district court case which did not apply Rule 9(a)) and also that there remained a dispute
`of fact as to whether or not Seidl had exercised his veto pursuant to the partnership agreement
`(Dkt. No. 153).
`In June 2016, an order held that defendants could challenge the partnership’s authority
`— even as a third party — and that Seidl had never authorized the lawsuit under state law, so
`Igra could not maintain this action in TRT’s name. No dispute between Igra and Seidl existed
`
`1 The Hawaii action at issue was actually Igra’s second lawsuit against Seidl in Hawaii state court
`relating to this internal dispute. The first had been to compel Seidl to produce documents relating to Seidl’s
`agreement with Luckey. The first action is immaterial to the instant motion. All references to the “Hawaii
`action” herein refer to the second action, the one seeking to compel Seidl to agree to commence the instant
`action against Luckey and Oculus.
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`Case 3:15-cv-02281-WHA Document 255 Filed 03/07/19 Page 3 of 17
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`about the facts of the communications between them. TRT merely disputed the legal effect of
`Seidl’s objections. Critically, the June 2016 order also postponed its effect subject to stated
`conditions, to “give counsel an opportunity to cure the authorization problem. To that end, the
`stay previously entered will remain in effect . . . until . . . the partners of Total Recall
`Technologies, file [] sworn declarations herein affirmatively and without qualification stating
`that both authorize and agree to the maintenance of this civil action in the name of Total Recall
`Technologies against Palmer Luckey and Oculus VR, LLC, that both ratify all actions taken
`herein so far on behalf of Total Recall Technologies, and that both consent to continued
`prosecution of the case by the law firm of Quinn Emanuel Urquhart & Sullivan, LLP . . .” (Dkt.
`No. 179 at 9, 14–15).
`Yet, counsel never met the conditions provided by the order. Instead, in December
`2016, Igra and Seidl stipulated to dismissal of the Hawaii action, agreeing to a new
`“Confidential Settlement and Release Agreement” between Igra and Seidl (Dkt. No. 204-1).
`Pursuant to the settlement agreement, Seidl withdrew “from the TRT partnership effective
`October 14, 2016, by executing a Withdrawal from Partnership . . . . Following Seidl’s
`withdrawal from TRT, Seidl shall have no control over TRT or any decision-making rights with
`respect to TRT” (Dkt. No. 204-2, Exh. A ¶ II.A). The settlement agreement defined the term
`“California Lawsuit” to mean our instant action, and assigned rights to it, as follows (id. ¶
`II.B.1):
`
`California Lawsuit Shall Remain TRT Property. Following the
`withdrawal by Seidl as a partner of TRT, any and all rights or other
`interests that relate to the California Lawsuit shall remain the
`property of TRT, and Seidl shall have no right to control any
`aspect of the California Lawsuit, and Seidl shall have no right to
`veto the California Lawsuit. Seidl understands that Igra intends to
`continue to pursue the California Lawsuit through TRT, and Seidl
`agrees that, with the exception of the rights set forth in Paragraph
`II.B.3. of this Agreement, he has no individual claims related to the
`California Lawsuit and shall have no right to seek judicial
`supervision or control over the California Lawsuit.
`The settlement agreement required Seidl to “reasonably cooperate with counsel for TRT
`with respect to the California Lawsuit” and also provided that Seidl would receive thirty percent
`of any monetary award, settlement, or other recovery herein after payment of fees and costs (id.
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`¶¶ II.B.3; II.C). On the other hand, Igra agreed to “defend and indemnify Seidl for any fees,
`costs, monetary penalty or other liability arising out of the California Lawsuit” (id. ¶ II.H). In
`exchange, Seidl received all of TRT’s intellectual property rights, with the exception of any
`rights in the names “Total Recall Technologies” and “TRT.” Seidl agreed to pay Igra a portion
`of revenues generated from those intellectual property assets (id. ¶ II.C). Seidl also received
`“all other tangible and intangible assets of TRT,” that is, he received all assets “[e]xcept for the
`rights in the California Lawsuit . . . and the names ‘Total Recall Technologies’ and ‘TRT’” (id.
`¶ II.E). Igra and Seidl released all claims against each other (id. ¶ II.F). They executed the
`settlement agreement on November 28, 2016. They entered a stipulation of dismissal of the
`Hawaii action on December 6 (Dkt. No. 207-2, Exh. B).
`After this settlement, TRT submitted a declaration from Seidl noting his withdrawal
`from TRT and stating that he understood that he had “no right to control any aspect of the
`California Lawsuit and no right to veto the California Lawsuit.” He understood, moreover, that
`he had “no individual claims related to the California Lawsuit and no right to seek judicial
`supervision or control over the California Lawsuit” (Dkt. Nos. 189-1 at ¶ 1; 213 at 4). For his
`part, Igra stated that he “as the sole remaining partner of Total Recall, authorize[d] and
`consent[ed] to the maintenance of” this action and the prosecution of the action by his counsel
`herein (Dkt. No. 189-2 at ¶ 7). Significantly, however, Seidl never gave any authorization or
`ratification of this action. Summary judgment was therefore granted in favor of defendants that
`TRT had not cured the authority problem and judgement was entered in favor of defendants
`(Dkt. No. 213 at 1, 5).
`TRT appealed. On appeal, plaintiff argued that (1) defendants lacked “standing” to
`contest Igra’s authority to sue in TRT’s name and TRT’s capacity to sue; (2) there was a
`genuine issue of material fact as to whether or not Seidl did in fact agree to sue; and (3) Igra
`retroactively ratified the lawsuit after becoming the sole TRT partner (Dkt. No. 246 at 3). In
`addition, TRT challenged a prior dismissal of two claims at the pleading stage. The court of
`appeals affirmed those dismissals.
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`As confirmed during oral argument in this action, until its briefing on appeal, TRT had
`never anchored its arguments that “standing” to contest Igra’s authority should be applied under
`Rule 9. Even on appeal, TRT’s Rule 9 arguments were raised solely in its reply briefing to
`counter defendants, who had raised it. Nevertheless, our court of appeals reversed the summary
`judgment order as having improperly applied state law rather than federal Rule 9 on the
`procedural question of whether defendants can challenge plaintiff’s authority to file this action.
`The panel remanded:
`[F]or 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).
`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.
`Total Recall v. Luckey, 731 F. App’x 706, 707 (9th Cir. 2018) (citations omitted). It seems odd
`that the district court was found to have erred on a point plaintiff never raised in the district
`court. It further seems strange that the district court was found to have applied state law, when
`the district court applied federal Rule 17(b) which directed the district court to apply state law.
`Nevertheless, the instant order must carry out the instruction by our court of appeals.
`On remand, TRT provided a new declaration from Seidl which stated: “[a]t no point in
`time . . . did I intend to waive any of TRT’s rights against Palmer Luckey and Oculus in
`connection with the Exclusivity Agreement . . . When I withdrew from TRT as a partner, I did
`so with the explicit intention and understanding that TRT would continue to pursue this lawsuit
`against Defendants . . .” (Dkt. No. 248-18 at ¶¶ 6, 8). This order follows full briefing and oral
`argument (Dkt. Nos. 246, 248, 253).
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`1.
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`
`
`ANALYSIS
`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.
`A.
`RULE 9(a).
`Rule 9 — entitled “Pleading Special Matters” — provides the pleading standard for
`certain circumstances. Intended to reduce the complexities of pleading under the common law,
`Rule 9(a) removes the requirement for parties to affirmatively plead their respective “capacity”
`or “authority” to sue or be sued. But Rule 9(a) does not eliminate those issues. Instead, the rule
`shifts the obligation to raise the issue from the pleader to the party intending to challenge
`“capacity” or “authority.” Specifically, Rule 9(a) provides as follows:
`Capacity or Authority to Sue; Legal Existence.
`(a)
`In General. Except when required to show that the court
`(1)
`has jurisdiction, a pleading need not allege:
`(A)
`a party’s capacity to sue or be sued;
`a party’s authority to sue or be sued in a
`(B)
`representative capacity; or
`the legal existence of an organized association of
`persons that is made a party.
`Raising Those Issues. To raise any of those issues, a party
`must do so by a specific denial, which must state any
`supporting facts that are peculiarly within the party’s
`knowledge.
`This order holds that challenging a party’s authority to sue or be sued in a
`representative capacity is not limited to the specific party named in the caption — but extends
`to an inquiry into the authority of whoever purports to control the litigation on behalf of that
`party. For example, in this case, Ron Igra, though he does not appear in the caption, was (and
`remains) the controlling force behind the plaintiff side of the litigation. Therefore, Rule 9(a)
`
`(C)
`
`(2)
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`comprehends an inquiry not only into the authority of the named party, but also the authority of
`the person purporting to control the litigation on the named party’s behalf.
`If the rule were to the contrary, then a mere shareholder or employee of AT&T, for
`example, (or even a complete stranger), could bring a lawsuit on behalf of AT&T merely
`through the trick of naming AT&T as plaintiff. Of course, this cannot be allowed. The
`adverse party must be able to inquire, before sinking expense into litigation, into the authority
`of who is actually behind the litigation to determine whether or not the suit is brought by
`someone with authority to act for the plaintiff.
`On the facts of this case, this order, like the previous orders, finds it quite clear that
`Ron Igra did not have authority to bring suit on behalf of TRT without the consent of his
`partner, Thomas Seidl.
`There is no case on point, but this order draws some support from our court of appeals
`that “authority . . . in a representative capacity” includes situations in which shareholders or
`partners bring an action on behalf of an entity such as a corporation or a partnership. In De
`Saracho v. Custom Food March., Inc., suit had been filed in the name of a corporation and the
`defendants challenged the corporation’s “authority” to sue without the consent of its board.
`Our court of appeals held that defendants had waived any objection to plaintiff’s authorization
`to sue under Rule 9(a). In highlighting that the “authorization” issue had been improperly
`raised on the eve of trial, our court of appeals discussed the timing of when the attorney for the
`individual who controlled the lawsuit on behalf of the corporation received the partnership
`agreement. “According to defendants,” the partnership agreement was “the key document that
`establishe[d] . . . approval was necessary for [the entity] to bring suit.” De Saracho v. Custom
`Food Mach., Inc., 206 F.3d 874, 876–77, 879 (9th Cir. 2000), cert. denied, 531 U.S. 876
`(2000) (citation omitted). If the defendant there had lacked the “standing” to raise the issue, it
`would have been easy to say so rather than engage in the merits.
`TRT attempts to distinguish the authorization challenge in De Saracho — a challenge
`to the entity’s authority itself to bring suit — from the one in this action, where the challenge is
`to the individual partner’s authority to bring suit on behalf of the entity. In other words, in this
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`action, unlike in De Saracho, defendants challenge Ron Igra’s authority to bring suit, but the
`plaintiff is TRT. Therefore, TRT says, Ron Igra’s authority cannot be challenged under Rule
`9(a)(1)(2).
`This distinction makes little sense in the context of Rule 9(a)(1)(B). All agree that Rule
`9(a)(1)(B) applies when a trustee brings suit on behalf of a trust — yet, in that circumstance,
`when the “authority” is challenged, the challenged authority is that of the entity bringing the
`suit (the trustee), not the entity on behalf of which the suit has been brought (the trust). As
`such, challenging a “party’s authority to sue . . . in a representative capacity,” pertains to the
`party’s ability to sue or be sued in a representative capacity, which includes the authority of
`those who bring suit on behalf of another.
`Further, TRT places too much weight on what is in the caption. While captions flag
`who the party purportedly is, as they must under Rule 10(a) (“[e]very pleading must have a
`caption . . . [which] must name all the parties . . . .”), they otherwise hold little weight. “While
`the caption of a complaint is helpful to the court, it is usually not considered part of the
`pleader’s statement of claim and is not determinative as to the parties to the action.” Sands v.
`Arizona Dept. of Corrections, 909 F.2d 1489, 1990 WL 107863, at *2 (9th Cir. 1990)
`(unpublished); see also Shoshone-Bannock Tribes v. Fish & Game Com’n, Idaho, 42 F.3d
`1278, 1285 (9th Cir. 1994) (collecting cases); Hoffman v. Halden, 268 F.2d 280, 303–04 (9th
`Cir. 1959), overruled on other grounds by, Cohen v. Norris, 300 F.2d 24 (9th Cir. 1962)
`(holding that the caption is not determinative to construe the identity of a defendant). As such,
`it is no argument here that Ron Igra is not listed as bringing this action “in a representative
`capacity” in the caption or even that TRT is the sole plaintiff here simply because TRT is the
`sole entity listed in the caption.
`De Saracho also provides insight on the matter of a defendant’s “standing” to challenge
`the internal management authority of a corporate entity. First, the opinion notably found the
`internal partnership agreement to be relevant to its discussion of Rule 9(a) “authority.”
`Second, if defendants had lacked “standing” to challenge the authority of plaintiff to sue then
`that ground would have been a vastly easier way to dispose of the appeal. TRT struggles to
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`explain why, if its argument has any merit, the De Saracho panel even entertained the
`challenge under Rule 9(a)(1)(B). De Saracho, 206 F.3d at 876–77.
`TRT posits that in De Saracho, the partners at issue were on both sides of the lawsuit
`and one of the disputed issues for trial was their respective authority. This purportedly created
`defendants’ “standing.” In other words, TRT submits that while insider defendants have
`“standing” to challenge the internal management authority of an entity, outsider defendants do
`not.
`
`Yet, the procedure under Rule 9(a)(2) makes no such distinction. Subsection two is a
`general rule that allows all parties — all plaintiffs, just as all defendants — to be able to raise
`the issues of capacity, authority, and legal existence under Rule 9(a). De Saracho also speaks
`in the context of “defendants” raising the challenge without further distinction. No indication
`exists from either the rule itself or any federal appellate decision that subsection two splits
`such hairs. As stated by the United States Court of Appeals for the Seventh Circuit: “it is
`always open to a defendant to show that the plaintiff in a diversity suit lacks capacity, under
`the law of the plaintiff’s state, to bring a suit.” BondPro Corp. v. Siemens Power Generation,
`Inc., 463 F.3d 702, 705 (7th Cir. 2006) (citing Fed. R. Civ. P. 9(a)), reh’g denied (2006).
`TRT’s distinction, therefore, insufficiently explains away De Saracho.
`TRT has not provided a single decision where any party — because of their status —
`has been denied a chance to raise the issue of “capacity” or “authority” under Rule 9(a). While
`other courts have concluded that “strangers” to an entity do not have “standing” to challenge
`the internal management authority of that entity, none of those cases challenged “capacity” or
`“authority” under Rule 9(a). See, e.g., Delbon Radiology v. Turlock Diagnostic Center, 839 F.
`Supp. 1388, 1391–93 (E.D. Cal. 1993); Rothman & Schneider, Inc. v. Beckerman, 141 N.E.
`610, 614 (N.Y. 1957).
`
`* * *
`In the alternative, TRT also lacks capacity to sue. While ordinarily it is true a
`partnership has capacity to bring suit in California, it still remains within the power of partners
`to agree to restrict the capacity of their partnership so that a partnership is unable to exercise
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`the full capacity of a usual partnership. Viewed in this way, this issue again is quite clear.
`TRT’s capacity was restricted by agreement. Suit can only be brought with approval of both
`partners.
`As stated, Rule 9(a) is the pleading standard. Rule 17(b), however, provides guidance
`as to how “capacity” should be “determined” based on the entity at issue. Rule 17(b) provides:
`(b)
`Capacity to Sue or Be Sued. Capacity to sue or be sued is
`determined as follows:
`(1)
`for an individual who is not acting in a representative
`capacity, by the law of the individual’s domicile;
`for a corporation, by the law under which it was organized;
`and
`for all other parties, by the law of the state where the court
`is located . . .
`
`(3)
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`(2)
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`(emphasis added).
`It is true that the prior order, analyzed the matter entirely under Rule 17(b). In
`remanding, however, our court of appeals highlighted a single error in the analysis: “[t]he
`district court erred in concluding that state law governed the procedural question of whether
`Defendants can challenge Plaintiff’s authority to file this action.” Total Recall, 731 F. App’x
`at 707. As such, our court of appeals did not say, let alone even suggest, that the definition of
`“capacity” in Rule 9(a) cannot be gleaned from Rule 17(b). Indeed, “there is no logical basis
`for different treatment of the capacity issues addressed in Rules 9(a) and 17(b) of the Federal
`Rules of Civil Procedure.” Swaim v. Moltan Co., 73 F.3d 711, 718 (7th Cir. 1996), cert
`denied, 517 U.S. 1244 (1996). The United States Court of Appeals for the Fourth Circuit
`succinctly described the relationship between the two rules: “Rule 9(a) . . . tells how the
`factual issue of . . . capacity must be raised. Rule 17(b) prescribes how the issue, once raised,
`should be decided.” Chrysler Credit Corp. v. Superior Dodge, Inc., 538 F.2d 616, 619 (4th
`Cir. 1976). Our court of appeals has not specifically addressed this point.
`Rule 17(b)(3) points us to apply California law. One California Court of Appeal
`decision specifically clarifies what capacity is and why the rule is in place. In American
`Alternative Energy Partners II, the California appellate court defined “incapacity” as “merely a
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`legal disability, such as minority or incompetency, which deprives a party of the right to
`represent his or her own interests in court.” Furthermore, “[t]he rules regarding party capacity
`are designed to assure that whatever judgment is rendered will be binding on the parties
`involved, and thus effectively resolve the litigation.” American Alternative Energy Partners II
`v. Windridge, Inc., 42 Cal.App.4th 551, 559 (1996) (emphasis added).
`TRT’s internal partnership agreement (allocating the right of the partnership to sue)
`falls squarely within the definition provided insofar as it deprives and/or grants TRT the right
`to represent the partnership’s own interests in court. Furthermore, a chief problem in this
`action has always been that if one partner (Igra) were deemed authorized unilaterally to assert
`claims on behalf of the partnership, then the second partner (Seidl) would have to be deemed
`authorized unilaterally to release claims on behalf of TRT. No judgment therefore could ever
`be binding on the partnership. In light of this, the determination of the internal management
`authority, under Rule 17(b)(3), appears to fall squarely with California’s definition of
`“capacity.”
`TRT asserts that capacity “is simply a party’s competence to be a party in a lawsuit as a
`general matter irrespective of the specific claim at issue. For example, a minor lacks capacity
`for all cases” (Dkt. No. 248 at 11) (emphasis added). But American Alternative Energy
`Partners II lists “competence” merely as an illustrative example for “capacity.” See also
`Parker v. Bowron, 40 Cal.2d 344, 351 (1953) (“incapacity is merely a legal disability, such as
`infancy or insanity, which deprives a party of the right to come into court”) (emphasis added).
`Other than a wide range of academic treatises, TRT cites to two decisions to support its
`crabbed definition of “capacity” (see Opp. Br. at 11 citing Johns v. San Diego, 114 F.3d 874,
`877 (9th Cir. 1997) and Opp. Br. at 14 citing Mather Const. Co. v. U.S., 475 F.2d 1152, 1155
`(Ct. Cl. 1973)). But those decisions explain the role of capacity in limited contexts: the first
`decision, in the context of a minor, and the second, in the context of a dissolved or suspended
`corporation. Even still, TRT never explains — in understanding the limitations to capacity —
`if a corporation’s capacity to sue can be removed when its “powers, rights and privileges” are
`suspended, why can’t a partnership’s capacity to sue be removed when the partnership
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`agreement removes the partnership’s powers, rights, and privileges to come into court? Cal.
`Rev. & Tax Code § 23301. In other words, just like a corporation’s capacity can be suspended
`for failure to pay taxes, a partnership’s capacity can also be removed through its internal
`partnership agreement.
`As all the academic treatises cited by TRT have suggested, the federal courts have,
`virtually since the beginning of the Federal Rules of Civil Procedure, been general about the
`definition of capacity, describing it as “the plaintiff’s personal right to come into court.”
`United States v. Association of Am. Railroads, 4 F.R.D. 510, 517 (D. Neb. 1945) (Judge John
`Wayne Delehant). This order hews to a practical construction in holding that partners can
`agree to disable their partnership from performing the full range of acts (like bringing suit) that
`might otherwise be permitted under state law. A partnership does not have a personal right to
`come into court when that partnership has been internally incapacitated from doing so.
`The procedure under Rule 9(a)(2) is therefore available to defendants here to raise the
`issues and challenge both Ron Igra’s “authority” and TRT’s “capacity.”
`B.
`ANOTHER BASIS ON WHICH DEFENDANTS CAN RAISE THE ISSUE: THIS
`COURT’S INHERENT POWER TO RESOLVE PLAINTIFF’S AUTHORITY TO SUE.
`Other than a party’s ability to challenge pleadings under Rule 9(a), a district court must
`have the inherent power to inquire into the authority of who is actually behind the litigation to
`determine whether or not the suit is brought by someone with authority to act to prevent an
`unauthorized lawsuit from consuming extensive judicial and party resources. See, e.g., In re
`M.C. Prods., 205 F.3d 1351 (9th Cir. 1999); Link v. Wabash R. Co., 370 U.S. 626, 630–31
`(1962). With this power, Rule 56(f)(3) then allows a court to “consider summary judgment on
`its own after identifying for the parties material facts that may not be genuinely in dispute.”
`To that end, when substantial motion practice reveals that a partner has “gone rogue” and filed
`a lawsuit in direct contravention to the underlying partnership agreement, judges must be able
`to learn the underlying nature of the lawsuit before additional resources have been poured into
`a case which may have zero merit. The alternative would be bad policy. A rogue cannot be
`allowed to unilaterally maintain an action in the name of a partnership or company, especially
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`where the defense demonstrates (and asserts early in the action), as here, that the rogue is a
`rogue.
`2.
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`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.
`Defendants’ amended answer to the Second Amended Complaint stated: “Defendants
`further aver that TRT is without authority or capacity to pursue this lawsuit . . . Igra caused this
`lawsuit to be filed on behalf of TRT without the required agreement or authorization of Seidl”
`(Dkt. No. 129 at 2). More than a mere general denial, this statement sufficiently placed TRT
`on notice that defendants challenged whether TRT was a proper party to this action. See, e.g.,
`Pugh v. Kobelco Const. Machinery America, LLC, 413 F. App’x 134, 136 (11th Cir. 2011);
`Ralston Oil and Gas Co. v. Gensco, Inc., 706 F.2d 685, 691 (5th Cir. 1983); Marston v.
`American Emp. Ins. Co., 439 F.2d 1035, 1041 (1st Cir. 1971). Defendants, moreover, did so in
`their answer, and thus, sufficiently early in the proceedings. See, e.g., Summers v. Interstate
`Tractor & Equipment Co., 466 F.2d 42, 49–50 (9th Cir. 1972); Federal Deposit Ins. Corp. v.
`Main Hurdman, 655 F. Supp. 259, 263 (E.D. Cal. March 3, 1987) (Chief Judge Lawrence
`Karlton). As such, defendants have complied with subsection two’s requirements, and have
`properly challenged TRT’s capacity and Igra’s authority to bring suit. TRT must now
`demonstrate that the lawsuit was properly authorized.
`Both sides have previously agreed that under Rule 17(b)(3), California law controls the
`effect of the partnership agreement on TRT’s capacity to sue and Igra’s authority to sue on
`TRT’s behalf. Rule 17(b)(3) directs us to apply California law.2
`
`2 Because the parties agree that Rule 17(b) should govern here even if the problem is one of
`“authority,” this order assumes that Rule 9(a)(1)(B) “authority . . . in a representative capacity” should be
`analyzed under Rule 17(b). Indeed, appellate courts have done so. See, e.g., Jone