“Equitable tolling” applies broadly so that prior civil and criminal complaints in France alleging similar harm may save a California suit filed beyond the statute of limitations
Justice Stratton, Presiding Justice of the Second Appellate District, Division Eight, explained that the legal saga in Metabyte v. Technicolor (August 9, 2023) B319338, had involved no less than four separate actions, two in the United States and two in France:
In a case which seems destined for the pages of a civil procedure casebook, Metabyte, Inc., appeals from the trial court's judgment of dismissal and order sustaining Technicolor's demurrer without leave to amend. This 2021 action represents Metabyte's fourth attempt to hold Technicolor liable for Technicolor's allegedly improper auction of a patent portfolio in 2009. The first two actions were brought in France, where Technicolor is headquartered. Metabyte brought a proceeding under Article 145 of the French Code of Civil Procedure (Article 145 proceeding), and then filed a criminal “plainte” against Technicolor. After the French courts ruled they lacked jurisdiction in the criminal action, Metabyte brought an action in United States District Court in California alleging a federal RICO claim and several state law causes of action. After the district court ruled that equitable tolling did not apply to its RICO claim as a matter of federal law, Metabyte dismissed the federal action and brought its state law claims in Los Angeles County Superior Court. (Id., p. 2; footnote omitted.)
These claims, of course, included fraud and related torts. The Hon. Daniel S. Murphy of the Los Angeles County Superior Court granted Technicolor's demurrer without leave to amend, finding the Article 145 proceeding was dissimilar in the relief it sought and therefore equitably tolling did not apply. The California action was therefore barred by the Statute of Limitations.
The genesis of Metabyte’s claims was that after obtaining a majority interest in a portfolio of patents owned by its subsidiary MNI, Technicolor then auctioned them off in a process that resulted in payment being made to preferred shares only and thus nothing to common shareholders such as Metabyte.
Metabyte is a California corporation. Metabyte's subsidiary Metabyte Networks, Inc (MNI) owned patents on digital video recording (DVR) technology used by cable television companies in set top boxes. Metabyte and its CEO and principal shareholder Manu Mehta owned the stock of MNI. At some point, Metabyte sold shares in MNI to an entity eventually known as Technicolor USA, but it retained majority ownership of MNI's stock. When MNI needed additional financing, it sold shares to Canal+ Technologies, a corporation in which Technicolor S.A. was a minority shareholder. An entity which became Technicolor International then purchased a controlling interest in Canal+ Technologies, giving Technicolor majority ownership of MNI stock.
At some point, Technicolor decided to liquidate MNI. In July 2001, liquidation preferences were set. Common shareholders such as Metabyte could not receive any money from the liquidation of assets until the preferred shareholders received over $16.4 million. In December 2009, Technicolor forced an auction of MNI's patent portfolio. A Technicolor subsidiary bought the patents for $1 million. In October 2010, Technicolor dissolved MNI. (Id., pp. 3-4.)
Metabyte later learned of allegations that Technicolor was being investigated in France for wrongfully acquiring assets of another company in which it invested, driving it into bankruptcy and then acquiring its assets for less than market value. Metabyte alleged Technicolor committed similar fraud here in that it valued the patent portfolio originally owned by MNI for less than it was worth so that Metabyte received nothing.
In 2010 Metabyte initiated an Article 145 proceeding in France, the result of which appears to have been mixed at best. Metabyte obtained an order to have a bailiff appear unannounced at Technicolor to seize documents from Technicolor, but was then denied access to some of these documents. While the Cour D’Appel and the Cour de Cassation (respectively, the Court of Appeal and Supreme Court) both ruled in favor of Metabyte, it appears Technicolor’s threats and an order it obtained from the Paris Bar discouraged the Bailiff in the section 145 proceeding from releasing documents to Metabyte.
Metabyte also initiated a criminal complaint in France. However, the Prosecuting Magistrate found France lacked jurisdiction to prosecute French entity Technicolor on behalf of the American entity Metabyte.
Metabyte then filed a RICO complaint in the United States District Court for the Northern District of California. The District Court granted Technicolor’s Rule 12(b) motion to dismiss, noting equitable tolling did not apply because the Article 145 proceeding did not seek the same relief and the statute of limitations barred the action. Metabyte then voluntarily dismissed the District Court action but without prejudice.
When Metabyte filed the present suit in the Superior Court of Los Angeles County, Technicolor adopted the District Court’s reasoning as its chief defense argument. Technicolor filed a demurrer based, inter alia, upon the statute of limitations which, as noted, was sustained without leave to amend.
Metabyte should have been given the opportunity to state additional facts showing equitable tolling might apply
Technicolor not only argued that equitable tolling did not apply to save the last-filed California court action, but also that judicial estoppel applied to bar the new California complaint. Specifically, Technicolor argued the dismissal of the RICO action barred any subsequent state law claims by Metabyte. The Second District disagreed, noting that where a demurrer is sustained with leave to amend (and, of course, the Rule 12(b) motion was akin to a demurrer), any subsequent dismissal “without prejudice” is not dispositive, and thus not res judicata on the claims dismissed so as to preclude these claims. In a footnote, the appellate court explained that even where a complaint is dismissed “with prejudice,” the res judicata effect is limited and a subsequent claim is not barred if “new or additional facts are alleged that cure the effects in the original pleading. . . .” (Metabyte, p. 12, citing to Wells v. Marina City Properties (1981) 29 Cal. 3d. 781, at 789.)
Having disposed of Technicolor’s argument that claim preclusion did not apply to bar the action, it turned to Metabyte’s argument that equitable tolling applied save the otherwise timely claims for fraud dating from the 2009 patent auction. Technicolor argued the dissimilarity in the prior French actions meant the doctrine did not apply. However, the appellate court stressed this was not the proper test; rather, in order to extend the statute of limitations by way of “equitable tolling,” a court must conduct a three-part analysis:
To determine whether equitable tolling may extend a statute of limitations, courts must analyze whether a plaintiff has established the doctrine's three elements: timely notice to the defendant, lack of prejudice to the defendant, and reasonable and good faith conduct by the plaintiff. (Metabyte, p. 16, quoting from Saint Francis Memorial Hospital v. State Dept. of Public Health (2020) 9 Cal. 5th 710, pp. 725–726.)
Metabyte then discussed the nature of this three-part analysis, calling it “fact-intensive” and concluding such issues are more properly resolved by way of a motion for summary judgment. (Id., pp. 16-17.) Towards this, the Second District rejected Technicolor’s argument that the Article 145 procedure was so dissimilar as to make it impossible for plaintiff Metabyte to show a lack of prejudice to Technicolor, noting that the original French civil proceeding gave Technicolor sufficient notice to begin a defense to Metabyte’s claims.
The appellate court therefore held the trial court had improperly failed to grant leave to amend, explaining Metabyte should be given an opportunity to plead further facts which indicate it is entitled to equitable tolling, such as that it acted reasonably and in good faith in bringing the French actions before the California suit. The Second District found this “good faith” had not been sufficiently plead, but also held Metabyte should be permitted to plead such facts. In summary, the Metabyte court found that equitable tolling could, at least in theory, be based upon the section 145 proceeding:
We reverse the order insofar as it requires a legal remedy which seeks to lessen damages and which holds that Article 145 proceedings can never satisfy the requirements for equitable proceedings. (Id., p. 20.)
Lessons for practitioners
Perhaps an overly-simplistic way in which to view this foregoing is to note the “home court” advantage which Technicolor obtained in France, where the Bailiff would not turn over documents despite multiple orders to do so, and, at the same time, the advantage Metabyte obtained in California, where the appellate court revived claims of fraud based on a 2009 patent sale.
Whether one agrees with this somewhat cynical view, the opinion offers other lessons for practitioners. The Second District appears to have taken a broad view of when leave to amend should be granted, giving the plaintiff the benefit of the doubt as to facts which one could plead on the issue of equitable tolling so that the suit might survive claims it was untimely. On this point one may speculate the actions of Technicolor in effectively blocking the Article 145 action and preventing the Bailiff from providing documents to Metabyte may have had some bearing on the issue of whether equitable tolling — with an emphasis on the word “equitable’ — applied in the California action
A more jaundiced view might be that a party who has plead a claim since 2009 on two continents has already been given sufficient opportunity to plead whatever it might plead. Nonetheless, Metabyte was given leave at this late date to state additional facts to meet the test for the application of equitable tolling.
Also relevant is the appellate court’s discussion of res judicata, giving a nuanced approach as to when the doctrine applies. Therefore, those who encounter an argument that dismissal with prejudice bars all future claims might want to cite Metabyte in support of their counter-argument that newly-discovered facts may in fact be an exception.
