Judge Curtis A. Kin, Case 19STCV43434 2023-04-13 Tentative Ruling

Judge: Curtis A. Kin, Case: 19STCV43434, Date: 2023-04-13 Tentative Ruling

Case Number: 19STCV43434 Hearing Date: April 13, 2023 Dept: 72

MOTIONS FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, FOR SUMMARY ADJUDICATION (3)

Date: 4/13/23 (10:00 AM)

Case: Ragnarok Game, LLC v. Nine Realms, Inc. et al. (19STCV43434)

TENTATIVE RULING:

Defendants Bethesda Softworks LLC, ZeniMax Media, Inc., and Roundhouse Studios LLC’s Motion for Summary Judgment or, in the Alternative, for Summary Adjudication is DENIED.

Defendant Rob Edgar’s Motion for Summary Judgment or, in the Alternative, Summary Adjudication is GRANTED IN PART.

Cross-Defendants Ragnarok Game, LLC, ESDFOS, LLC, Matthew Candler, Sam Kim, and Sam Goldberg’s Motion for Summary Judgment or, in the Alternative, Summary Adjudication is GRANTED IN PART.

I. DEFENDANTS BETHESDA SOFTWORKS LLC, ZENIMAX MEDIA INC., AND ROUNDHOUSE STUDIOS LLC’S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, FOR SUMMARY ADJUDICATION

A. Evidentiary Matters

Defendants Bethesda Softworks LLC, ZeniMax Media Inc., and Roundhouse Studios LLC’s (collectively, “ZeniMax Defendants”) evidentiary objections are OVERRULED.

B. Issue No. 1: First Cause of Action for Breach of Contract against ZeniMax Media, Inc.

The first cause of action for breach of contract is asserted against defendant Nine Realms, Inc. dba Human Head (“Human Head”) and ZeniMax Media, Inc. (“ZeniMax Media”) as the purported successor. The ZeniMax Defendants maintain that they cannot be held liable for any breach of contract because they did not assume Human Head’s liabilities and accordingly cannot be held liable as successors. The ZeniMax Defendants also argue that ZeniMax Media is not a party to the Rune II Game Development Agreement that is the subject of the Third Amended Complaint. (TAC ¶¶ 52, 241; UMF 10, 11.)

Plaintiffs argue that Roundhouse Studios LLC (“Roundhouse”) is the successor to Human Head’s liabilities and that ZeniMax Media is an alter ego of Roundhouse.

With respect to whether Roundhouse assumed Human Head’s liabilities, “[u]nder generally accepted rules, when a corporation purchases the principal assets of another corporation, ‘the purchaser does not assume the seller's liabilities unless (1) there is an express or implied agreement of assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts.’ [Citation.]” (Hernandez v. Enterprise Rent-A-Car Co. of San Francisco (2019) 37 Cal.App.5th 187, 192, quoting Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28.) The exceptions to the general rule of successor nonliability apply only ‘where all or substantially all of the corporation's assets are purchased ....’ [Citation.]” (Orthotec, LLC v. Reo Spineline, LLC (C.D. Cal. 2006) 438 F.Supp.2d 1122, 1128, quoting Acheson v. Falstaff Brewing Corp. (9th Cir.1975) 523 F.2d 1327, 1330.) Given “the factual and equitable nature of the successor liability doctrine; it is probable that no single factual element, standing alone, would establish or negate successor liability.” (Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1334.)

With respect to whether Roundhouse purchased the principal assets of Human Head, through the Tangible Asset Purchase Agreement dated November 5, 2019 (“TAPA”), Roundhouse purchased the equipment, including computer systems, monitors, and server equipment, and furniture of Human Head. (PSAF 70-72.) It is undisputed that Human Head continues to own intangible assets, including data, intellectual property, and financial assets. (UMF 6.) Nevertheless, included in the asset sale were computers containing game code and assets for Rune II and Oblivion Song. (PSAF 77-79.) Moreover, under the TAPA, Roundhouse had a right of first negotiation with respect to the sale, transfer, or disposal of names and trademarks. (Pl. Ex. 23 at § 4.2.) Based on the foregoing, plaintiffs demonstrate a triable issue concerning whether Roundhouse purchased substantially all the principal assets of Human Head.

Plaintiffs also argue that Human Head merged into Roundhouse. “Courts have described five factors which indicate whether a transaction cast in the form of an asset sale actually achieves the same practical result as a merger: (1) was the consideration paid for the assets solely stock of the purchaser or its parent; (2) did the purchaser continue the same enterprise after the sale; (3) did the shareholders of the seller become shareholders of the purchaser; (4) did the seller liquidate; and (5) did the buyer assume the liabilities necessary to carry on the business of the seller?” (Marks v. Minnesota Mining & Manufacturing Co. (1986) 187 Cal.App.3d 1429, 1436.)

Plaintiffs present evidence that Roundhouse continued the same enterprise as Human Head – video game development – after the asset sale. (PSAF 113-114.) With respect to liquidation, plaintiffs also demonstrate that Human Head may no longer be an ongoing entity because ZeniMax Media required Roundhouse to provide “dates certain for winding down.” (PSAF 144.) Human Head has stopped developing games or doing support work on games it has developed. (PSAF 66.) Plaintiffs also demonstrate that Roundhouse may have assumed liabilities necessary to carry on the business of Human Head. While the TAPA stated that Roundhouse did not assume any liability of Human Head, the agreement also states that a condition of the asset sale was that Roundhouse pay the salary owed to current and former employees, any outstanding payroll taxes, and benefit plan coverage payments. (Pl. Ex. 23 at §§ 1.4, 1.5.) Even though the purchase price of Human Head was in cash, as opposed to stock, the other factors used to determine whether an asset sale constitutes a merger indicate that the issue of whether Human Head merged into Roundhouse must be resolved at trial.

Plaintiffs also argue that Roundhouse is a mere continuation of Human Head. For a mere continuation, plaintiffs must demonstrate one or both of the following elements: “(1) no adequate consideration was given for the predecessor corporation’s assets and made available for meeting the claims of its unsecured creditors; (2) one or more persons were officers, directors, or stockholders of both corporations.” (Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1327, quoting Ray v. Alad Corp. (1977) 19 Cal.3d 22, 29.)

With respect to the adequacy of consideration, plaintiffs demonstrate that ZeniMax Media offered to purchase Human Head’s assets for a “de minimis” amount. (PSAF 45.) However, the ZeniMax Defendants contend that the actual consideration was fair market value, which was more than “de minimis.” (Def. Ex. 2 at 29:14-18; Samet Reply Decl. ¶ 3 & Ex. A at 122:8-123:3.) While plaintiffs maintain that the $285,000 purchase price was not enough to cover all liabilities of Human Head, the evidence to which plaintiffs cite indicates that $65,000 was placed in escrow “in the event there are any new creditors that emerge.” (See Opp. at 28:2-5; Pl. Ex. 47.) Plaintiffs do not cite any evidence indicating Human Head had any outstanding invoices to its agent or to any credit card debt. (Opp. at 28:3-5.)

Regardless of whether the purchase price in the TAPA was adequate, plaintiffs demonstrate that one or more persons of Human Head was an officer or director of Roundhouse. Defendant Ben Gokey was the leader of both Human Head and Roundhouse. (PSAF 112.) The Court thus finds that plaintiffs demonstrate a triable issue concerning whether Roundhouse is a mere continuation of Human Head.

With respect to whether Roundhouse’s action can be imputed to ZeniMax Media, the Court previously found that, for purposes of exercising specific jurisdiction over ZeniMax Media, plaintiffs demonstrated that Roundhouse and ZeniMax Media were alter egos of each other. (Pl. Ex. 1 at 8-9.) While the prior alter ego finding on the ZeniMax Defendants’ motion to quash service of summons is not dispositive of whether ZeniMax Media is an alter ego of Roundhouse, the prior finding at the very least demonstrates that the issue of the purported alter ego relationship between Roundhouse and ZeniMax Media is triable. Accordingly, because Roundhouse may be found liable as a successor of Human Head, ZeniMax Media may be liable as Roundhouse’s alter ego.

In the alternative, the ZeniMax Defendants contend that there was no breach of the Rune II Game Development Agreement (“GDA”). Human Head warranted in the Rune II GDA that the game would be bug free. (PSAF 13.) However, the game had 202 bugs as of November 1, 2019. (PSAF 51.)

In addition, Exhibit B of the Rune II GDA required Human Head to provide, from the time of launch, six months of “Support and Live Operations Services,” which includes “ongoing development, management, and support services” relating to Rune II. (PSAF 16; Pl. Ex. 20 at Ex. B.) Although section 1(c)(ii) of the Rune II GDA stated that the services described in Exhibit B were to be provided “for not less than one month,” that section may be read consistently with the six-month period set forth in Exhibit B, as six months is “not less than one month.” In any event, plaintiffs demonstrate a triable issue regarding whether Human Head provided at least even one month of live operations services. Plaintiffs present evidence that Amethyst Begley, a producer of Rune II, was told by defendant Christopher Rhineheart, one of the founders of Human Head, that, as of November 5, 2019, Human Head would have nothing more to do with Rune II. (Resp. to UMF 15.) On November 7, 2019, Gokey told Matthew Candler and Sam Goldberg, plaintiffs’ founders, that Human Head would “be unable to do additional contracts for live ops or additional work with” them. (Pl. Ex. 45.) The issue of whether “additional” meant in addition to the contract (as defendants contend) or from the time that Gokey sent the email must be resolved at trial. Finally, even if plaintiffs ordered Human Head’s principals to stop working on Rune II on November 20, 2019 (UMF 15), plaintiffs’ evidence indicates that Human Head may have been the first to breach the GDA. (See CACI 324 [“A party can breach, or break, a contract before performance is required by clearly and positively indicating, by words or conduct, that the party will not or cannot meet the requirements of the contract”].)

Based on the foregoing, plaintiffs demonstrate triable issues concerning whether Human Head breached the Rune II GDA, whether Roundhouse succeeded to Human Head’s liabilities, and whether ZeniMax Media can be held liable as Roundhouse’s alter ego.

The motion as to Issue No. 1 is DENIED.

C. Issue No. 2: Second Cause of Action for Fraudulent Concealment against ZeniMax Defendants

In the second cause of action for fraudulent concealment, plaintiffs allege that the ZeniMax Defendants conspired with Human Head to conceal several facts, including that Human Head released its employees on November 1, 2019, that the ZeniMax Defendants hired Human Head’s employees on November 4, 2019, and that the ZeniMax Defendants caused Roundhouse to acquire Human Head’s assets on the same day. (TAC ¶¶ 261, 262.)

The ZeniMax Defendants maintain that they had no role in the alleged concealment. (UMF 22, 27.) However, ZeniMax Media employed Human Head’s personnel. (Resp. to UMF 23, 24.) Further, Gokey testified that he was acting within the scope of his employment contract with ZeniMax Media in performing wind-down activities with respect to Rune II and Oblivion Song. (Resp. to UMF 27.) Even if the rider stated that Gokey would be acting as a shareholder, officer, or director of Human Head (Pl. Ex. 46) in performing the wind-down activities, “[a]n agency is actual when the agent is really employed by the principal.” (Civ. Code § 2299.) Accordingly, the employment of Human Head personnel by ZeniMax Media signifies that any concealment by them may have been as agents of ZeniMax Media. Plaintiffs thus demonstrate a triable issue concerning whether ZeniMax Media can be liable as Human Head’s principal for any concealment of facts by Human Head employees.

With respect to Roundhouse and Bethesda, as stated above, the Court previously found an alter ego relationship between Roundhouse and ZeniMax Media for purposes of exercising jurisdiction. (Pl. Ex. 1 at 8-9.) The Court also previously found that ZeniMax Media and Bethesda are alter egos of each other for purposes of exercising jurisdiction. (Pl. Ex. 1 at 6-8.) Accordingly, plaintiffs demonstrate a triable issue concerning whether Roundhouse and Bethesda can be liable as ZeniMax Media’s alter egos.

Further, even if any concealment by Human Head personnel was not in their capacity as ZeniMax Media employees, for the reasons stated in Issue No. 1, plaintiffs demonstrate a triable issue regarding whether Roundhouse can be held liable as a successor of Human Head. And, as stated above, the Court previously found that, for purposes of exercising jurisdiction, Roundhouse and ZeniMax Media were alter egos and ZeniMax Media and Bethesda Softworks LLC (“Bethesda”) are alter egos. Thus, under a theory of successor and alter ego liability, the ZeniMax Defendants may be held liable for fraudulent concealment.

The motion as to Issue No. 2 is DENIED.

D. Issue No. 3: Third Cause of Action for Conversion against ZeniMax Defendants

Plaintiffs allege that the ZeniMax Defendants converted the content and materials for Rune II and Oblivion Song by preventing plaintiffs from accessing and refusing to return the games. (TAC ¶ 276.) Plaintiffs demonstrate that the game assets belonged to them under the respective Game Development Agreements. (PSAF 18, 31.)

The ZeniMax Defendants argue that, even if Human Head is liable for conversion, the ZeniMax Defendants are not liable because plaintiffs cannot show successor liability. For the reasons stated above with respect to Issue Nos. 1 and 2, plaintiffs demonstrate a triable issue concerning whether Roundhouse was a successor to Human Head and whether ZeniMax Media and Bethesda can be held liable for Roundhouse’s actions under an alter ego theory of liability.

The ZeniMax Defendants also contend that they did not exercise any dominion or control over the games. “Conversion requires the defendant to take some affirmative action to exercise dominion over or deprive a plaintiff of his or her property.” (Archer v. Coinbase, Inc. (2020) 53 Cal.App.5th 266, 276.) “Conversion requires affirmative action to deprive another of property, not a lack of action.” (Spates v. Dameron Hospital Assn. (2003) 114 Cal.App.4th 208, 222.)

According to the amendment to the TAPA, shortly after November 5, 2019, Human Head informed Roundhouse that the computers contained data that Human Head needed to finish work on Rune II and to wind-down its business. (PSAF 77, 81.) On November 7, 2019, the Human Head founders identified certain computers in connection with the games that must be preserved. (PSAF 75, 76.) Plaintiffs also present evidence that, starting on November 8, 2019, they asked the Human Head founders for the source code for the subject games. (PSAF 86.) Despite plaintiffs’ demands, Roundhouse did not transfer the computers containing the game assets until February 12, 2020. (PSAF 80.)

Contrary to the ZeniMax Defendants’ contention, withholding of the computers after demand can constitute affirmative action to deprive another of property. (See Zaslow v. Kroenert (1946) 29 Cal.2d 541, 551 [If, upon demand for the return of the chattels, they had prevented the removal of the goods, such acts would have constituted evidence of a conversion”].) Plaintiffs demonstrate that they asked Human Head to return the game assets and that Human Head withheld the assets for months.

The motion as to Issue No. 3 is DENIED.

E. Issue No. 4: Fourth Cause of Action for Fraudulent Misrepresentation against ZeniMax Defendants

In the fourth cause of action for fraudulent misrepresentation, plaintiffs allege that defendants, including the ZeniMax Defendants, misrepresented to plaintiffs that they intended to remain contracting partners in the development and support of Rune II and Oblivion Song. (TAC ¶¶ 283, 286, 287.)

The ZeniMax Defendants maintain that they did not play any role in the alleged misrepresentation because the Human Head principals were not acting on behalf of any ZeniMax Defendant. (PSAF 66, 67.) For the reasons stated above with respect to Issue No. 2, plaintiffs demonstrate a triable issue concerning whether the ZeniMax Defendants may be held liable for any misrepresentations made by Human Head personnel to plaintiffs. (See Resp. to 63, 64, 67.)

The Court notes that, in their motion, defendants do not argue lack of misrepresentations or detrimental reliance. (See Mtn. at 26:11-29:6; UMF 63-80.) Accordingly, even though the ZeniMax Defendants raised these issues in the reply in response to the opposition (Reply at 11:21-12:6; Opp. at 25:26-27), the burden never shifted to plaintiffs to demonstrate a triable issue regarding the existence of any misrepresentation or detrimental reliance.

The motion as to Issue No. 4 is DENIED.

F. Issue No. 5: Fifth Cause of Action for Negligent Misrepresentation against ZeniMax Defendants

In the fifth cause of action for negligent misrepresentation, plaintiffs allege that the ZeniMax Defendants misrepresented to plaintiffs that they intended to remain contracting partners in the development and support of Rune II and Oblivion Song. (TAC ¶¶ 295, 298, 299.)

The ZeniMax Defendants maintain that they did not play any role in the alleged misrepresentation because the Human Head principals were not acting on behalf of any ZeniMax Defendant. (PSAF 85, 85.) For the reasons stated above with respect to Issue Nos. 2 and 4, plaintiffs demonstrate a triable issue concerning whether the ZeniMax Defendants may be held liable for any misrepresentations made by Human Head personnel to plaintiffs. (See Resp. to 81, 82, 85.)

The motion as to Issue No. 5 is DENIED.

G. Issue No. 6: Sixth Cause of Action for Unfair Business Practices in Violation of Business and Professions Code Section 12700 against ZeniMax Defendants

Plaintiffs seek to dismiss the sixth cause of action for unfair business practices under Business and Professions Code § 17200 against all defendants. (Opp. at 31, fn. 7.) The sixth cause of action is DISMISSED WITHOUT PREJUDICE. Accordingly, the motion as to Issue No. 6 is DENIED as MOOT.

H. Issue No. 7: Seventh Cause of Action for Tortious Interference with Contract against ZeniMax Defendants

“Tortious interference with contractual relations requires ‘(1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.’ [Citations.]” (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1141.)

The ZeniMax Defendants argue that there was no breach of the contractual relationship between plaintiffs and Human Head because the ZeniMax Defendants did not prevent Human Head from working on the subject games. (UMF 123, 124.) However, the rider attached to the employment contracts indicated that ZeniMax Media only permitted Human Head to perform “minimal work” to wind down its obligations to plaintiffs. (Resp. to UMF 123, 124.) Further, on November 7, 2019, Gokey told Candler and Goldberg that Human Head would “be unable to do additional contracts for live ops or additional work with” them. (Pl. Ex. 45.) As discussed in Issue No. 1, Exhibit B of the Rune II GDA required Human Head to provide six months of live operations services. (Pl. Ex. 20 at Ex. B; see also TAC ¶ 313 [ZeniMax Defendants allegedly caused Human Head to breach obligations to plaintiffs by prohibiting principals from providing contractually required support services].) The operative rider indicates that the ZeniMax Defendants may have induced a breach of the Rune II GDA by restricting Human Head from providing the live operation services required under the Rune II GDA.

With respect to the ZeniMax Defendants’ other arguments, including that Human Head terminated its employees because of financial concerns, not because of any direction from the ZeniMax Defendants, no supporting facts are indicated in the separate statement. (See UMF 121-124.) It is the “Golden Rule” of summary adjudication that “if it is not set forth in the separate statement, it does not exist.” (City of Pasadena v. Superior Court (2014) 228 Cal.App.4th 1228, 1238, citing United Community Church v. Garcin (1991) 231 Cal.App.3d 327, 337.) “Separate statements are required not to satisfy a sadistic urge to torment lawyers, but rather to afford due process to opposing parties and to permit trial courts to expeditiously review complex motions for [summary adjudication of issues] and summary judgment to determine quickly and efficiently whether material facts are disputed.” (United Community Church, 231 Cal.App.3d at 335.) Accordingly, the burden never shifts to plaintiffs regarding these other arguments.

The motion as to Issue No. 7 is DENIED.

I. Issue No. 8: Eighth Cause of Action for Tortious Interference with Prospective Economic Relations against ZeniMax Defendants

A plaintiff asserting a cause of action for tortious interference with prospective economic advantage must show that the defendant knowingly interfered with an “economic relationship between the plaintiff and some third party, [which carries] the probability of future economic benefit to the plaintiff.” (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1141, quoting Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153.) “[I]ntentionally interfering with prospective economic advantage requires pleading that the defendant committed an independently wrongful act.” (Ixchel, 9 Cal.5th at 1142.)

The eighth cause of action is based on the ZeniMax Defendants’ alleged interference with Human Head’s commitment to further develop Rune II and Oblivion Song. (TAC ¶¶ 318, 320.) In the motion, the ZeniMax Defendants contend that there was no probability of future economic benefit or damages, as Human Head was going to lay off its employees anyway. However, no supporting facts supporting this assertion appear in the separate statement. (See UMF 125-128.) For the reasons discussed above with respect to Issue No. 7, the burden never shifts to plaintiffs to demonstrate the probability of future economic benefit or damages.

The ZeniMax Defendants also argue that plaintiffs cannot point to any independently wrongful act. Plaintiffs plead that the wrongful conduct includes the “intentional conversion of the Game Assets for Rune II and Oblivion Song….” (TAC ¶ 321.) For the reasons discussed above with respect to Issue No. 3, plaintiffs demonstrate that the ZeniMax Defendants could be held liable for intentional conversion.

The motion as to Issue No. 8 is DENIED.

J. Issue No. 9: Ninth Cause of Action for Receipt of Stolen Property (Penal Code section 496) against ZeniMax Media, Inc. and Roundhouse Studios LLC

Under Penal Code § 496(a), “[t]he elements of the offense of receiving stolen property are (1) that the property has been stolen; (2) that the accused received, concealed or withheld it from its owner; and (3) that the accused knew the property was stolen. (People v. Stuart (1969) 272 Cal.App.2d 653, 656.) The ninth cause of action for receipt of stolen property in violation of Penal Code § 496 is based on Human Head’s refusal to return the game assets to plaintiffs for months. (TAC ¶¶ 328, 329.)

The ZeniMax Defendants contend that they lacked the requisite knowledge of stolen property. Theft under Penal Code § 496 requires more than innocent or inadvertent nonperformance or actual falsity; it requires “careful planning and deliberation reflecting the requisite criminal intent.” (Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 362.)

As discussed above with respect to Issue No. 3, plaintiffs demonstrate that they owned the game assets under the Game Development Agreements with Roundhouse, requested the Human Head founders to return the game assets starting on November 8, 2019, and that Human Head withheld the assets for months. (Resp. to UMF 129, 130.) Based on the months-long withholding, plaintiffs demonstrate a triable issue regarding whether Human Head’s withholding of the game assets was with the necessary planning and deliberation to constitute theft.

The ZeniMax Defendants argue that, even if Human Head is liable for receipt of stolen property, the ZeniMax Defendants are not liable because plaintiffs cannot show successor liability. For the reasons stated above with respect to Issue Nos. 1 and 2, plaintiffs demonstrate a triable issue concerning whether Roundhouse was a successor to Human Head and whether ZeniMax Media and Bethesda can be held liable for Roundhouse’s actions under an alter ego theory of liability.

The motion as to Issue No. 9 is DENIED.

K. Issue No. 10: Tenth Cause of Action for Receipt of Stolen Property (Wis. Stat. 895.446) against ZeniMax Media, Inc. and Roundhouse Studios LLC

“Any person who suffers damage or loss by reason of intentional conduct that…is prohibited under [section]…943.34… has a cause of action against the person who caused the damage or loss.” (Wis. Stat. § 895.446.) Under Wis. Stat. § 943.34, “[W]hoever knowingly or intentionally receives or conceals stolen property is guilty….” (Wis. Stat. § 943.34(1).)

Like the ninth cause of action, the tenth cause of action for receipt of stolen property is based on Human Head’s refusal to return the game assets to plaintiffs for months. (TAC ¶¶ 337, 338.) The ZeniMax Defendants contend that they lacked the requisite knowledge and that they cannot be held liable for Human Head’s actions. For the reasons stated above with respect to Issue Nos. 3 and 9, plaintiffs demonstrate a triable issue concerning whether Human Head’s deprivation of the game assets was intentional and whether the ZeniMax Defendants can be held liable under theories of successor and alter ego liability.

The motion as to Issue No. 10 is DENIED.

For all the foregoing reasons, Defendants Bethesda Softworks LLC, ZeniMax Media, Inc., and Roundhouse Studios LLC’s Motion for Summary Judgment or, in the Alternative, for Summary Adjudication is DENIED in its entirety.

II. DEFENDANT ROB EDGAR’S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION

A. Issue No. 1: Third Cause of Action for Conversion against Edgar

Defendant Rob Edgar argues that the third cause of action for conversion fails because he did not have the power to return the assets of the subject games to plaintiffs. (UMF 1.) Plaintiffs do not dispute this assertion. (Resp. to UMF 1.) Instead, plaintiffs argue that Edgar interfered with plaintiffs’ possession of the game assets by assisting defendant Ben Gokey in withholding game assets from plaintiffs while demanding payment. (PSAF 28, 29, 61-63.)

“Conversion has been broadly defined as any act of dominion wrongfully exerted over another's personal property in denial of or inconsistent with his rights thereto.” (Pilch v. Milikin (1962) 200 Cal.App.2d 212, 224.) “[I]t is immaterial that the actual possession question may be in the actual possession of a third party.” (Ibid.)

Citing Pilch and Zurich American Ins. Co. v. Trans Cal Ins. Associates, Inc. (E.D. Cal. 2010) 2010 WL 4968078, plaintiffs contend that possession of the game assets is immaterial to the conversion claim. Pilch is inapposite because the defendant wrongfully assumed authority over funds located in two banks by refusing to sign a withdrawal form. (Pilch, 200 Cal.App.2d at 224-25.) Zurich is inapposite because the cross-defendant wrongfully assumed control over the funds located in a bank by instructing the bank to refuse payment to the cross-complainant. (Zurich, 2010 WL 4968078 at *1, 4.)

Here, plaintiffs fail to present any evidence that, even if Edgar advised Gokey regarding the withholding of game assets, Edgar had the authority or control over Gokey or any other defendants who possessed and/or withheld the game assets. Plaintiffs fail to demonstrate that Edgar had any dominion over the game assets.

The motion as to Issue No. 1 is GRANTED.

B. Issue No. 2: Second Cause of Action for Fraudulent Concealment against Edgar

Edgar maintains that the second cause of action for fraudulent concealment fails because he was under no duty to disclose. There are four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff, (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff, (3) when the defendant actively conceals a material fact from the plaintiff, and (4) when the defendant makes partial representations but also suppresses some material facts. (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.)

Plaintiffs demonstrate a triable issue concerning the fourth circumstance of fraudulent inducement. Plaintiffs do not dispute that they had no contractual or agent-principal relationship with Edgar. (UMF 3-5.) However, “[e]ven where no duty to disclose would otherwise exist, ‘where one does speak he must speak the whole truth to the end that he does not conceal any facts which materially qualify those stated. [Citation.] One who is asked for or volunteers information must be truthful, and the telling of a half-truth calculated to deceive is fraud.’ [Citations].” (Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 292.)

Plaintiffs present evidence that Edgar may have represented on October 15, 2019 that he and Human Head were working on a “go forward” plan for Oblivion Song. (PSAF 43.) However, on October 12, 2019, Edgar indicated his understanding that Human Head was not working on a “go forward” plan for Oblivion Song. (PSAF 45.) A reasonable juror could find that Edgar concealed that there was no “go forward” plan for Oblivion Song when he represented otherwise to plaintiffs.

The motion as to Issue No. 2 is DENIED.

C. Issue No. 3: Fifth Cause of Action for Negligent Misrepresentation against Edgar

Edgar maintains that the fifth cause of action for negligent misrepresentation fails because it requires a “positive assertion,” that is, it cannot be based on an implied misrepresentation or a promise of future performance. (Stockton Mortgage, Inc. v. Tope (2014) 233 Cal.App.4th 437, 458-59.) In discovery, plaintiffs stated that the negligent misrepresentation cause of action is based in part on Edgar’s representation that “[o]n October 6, 2019, Edgar reassured Plaintiff that a ‘go forward’ plan from Human Head was forthcoming and urged Plaintiffs to pay Human Head money.” (UMF 7.) Edgar maintains that this is a non-actionable representation regarding future performance.

However, Edgar’s statement that a “go forward” plan was forthcoming could form the basis for a false promise cause of action if Edgar knew that no such plan was forthcoming. (See Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 159 [“To maintain an action for deceit based on a false promise, one must specifically allege and prove, among other things, that the promisor did not intend to perform at the time he or she made the promise and that it was intended to deceive or induce the promisee to do or not do a particular thing”].) Here, as stated above, plaintiffs present evidence that Edgar confirmed on October 12, 2019 his understanding that Human Head was not working on a “go forward” plan for Oblivion Song. (PSAF 45.)

The motion as to Issue No. 3 is DENIED.

D. Issue No. 4: All Fraud Claims against Edgar

Edgar contends plaintiffs have not adduced any evidence of detriment caused by his alleged misrepresentations and omissions. Plaintiffs contend that, due to Edgar’s purportedly false representations or omissions, plaintiffs (1) made milestone payments, (2) did not seek to enforce its rights against Edgar based on unauthorized disclosure of confidential information, and (3) did not make alternate plans for the completion, release, promotion, and post-launch support of Rune II. (UMF 9.)

Edgar argues that milestone payments cannot constitute reliance damages because they are preexisting contractual obligations. (UMF 12.) “Generally speaking, a commitment to perform a preexisting contractual obligation has no value.” (Auerbach v. Great Western Bank (1999) 74 Cal.App.4th 1172, 1185.) Accordingly, preexisting contractual obligations cannot form the basis of reliance damages for fraud-based causes of action. (Id. at 1185-86.) However, plaintiffs present evidence that they had the right to approve or disapprove deliverables in its sole discretion and that milestone payments were not due until they were satisfied. (Resp. to UMF 12, 14.) Even if plaintiffs agreed to push certain items for Milestone 22 (Pl. Ex. 1 at 88:3-89:22), plaintiffs demonstrate that they may have indicated disapproval for prior milestones had Edgar told them that Human Head would not support Rune II after launch. (Goldberg Decl. ¶ 8.)

With respect to disclosure of confidential information, in the Second Amended Complaint filed on October 20, 2020, plaintiffs alleged that Edgar facilitated the breach of the Rune II Agreements by providing copies of the agreements to ZeniMax Media and Bethesda, in violation of the confidentiality provisions. (UMF 15.) Edgar maintains that plaintiffs could not have been damaged by Edgar’s disclosure of the agreements because plaintiffs have not since sued Edgar for disclosure of the information. (UMF 16.) This argument is hard to fathom, as plaintiffs are now suing Edgar based on Edgar’s alleged concealment of ZeniMax Media’s intent to acquire Human Head. (Resp. to UMF 16.) A reasonable juror could find that Edgar’s purported distribution of the Rune II Agreements to ZeniMax Media facilitated that concealment, which harmed plaintiffs.

With respect to alternate plans, Edgar maintains that any damages arose from Human Head’s breach of the Game Development Agreements, not any reliance on any false representation or omission by Edgar. (UMF 19; see also Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1819 [“It was only when Clorox terminated the parties’ contractual relationship that Medallion could have perceived its reliance expenses as ‘losses.’ Thus, it was the termination, not the misrepresentation, that resulted in the alleged harm”].) However, plaintiffs present evidence that Human Head failed to complete the milestones for the games. (PSAF 56.) A reasonable juror could find that Edgar is responsible for damages plaintiffs suffered due to reliance on Edgar’s omissions and representations because plaintiffs might have sought development and support services from entities other than Human Head but for Edgar’s assurances. (See Service by Medallion, 44 Cal.App.4th at 1818 [“If the contract had not been performed, we might agree that these expenditures constituted damages proximately caused by the misrepresentations”].)

The motion as to Issue No. 4 is DENIED.

E. Issue No. 5: Violation of California Business & Professions Code § 17200

Plaintiffs seek to dismiss the sixth cause of action for unfair business practices under Business and Professions Code § 17200 against all defendants. (Opp. at 21, fn. 4.) The sixth cause of action is DISMISSED WITHOUT PREJUDICE. Accordingly, the motion as to Issue No. 5 is DENIED as MOOT.

III. CROSS-DEFENDANTS RAGNAROK GAME, LLC, ESDFOS, LLC, MATTHEW CANDLER, SAM KIM, AND SAM GOLDBERG’S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION

A. Evidentiary Matters

Cross-defendants’ evidentiary objections are OVERRULED.

B. ISSUE 1: Cross-Defendants are entitled to summary adjudication of the cross-claim for fraudulent concealment on the grounds that, as a matter of law, Cross-Defendants concealed no material facts and thus Human Head cannot prove this essential element of its claim.

The second cause of action in the Cross-Complaint is based on cross-defendants’ concealment of their alleged inability to make the milestone payments due under the Rune II and Oblivion Song Game Development Agreements (“GDAs”) at the time Human Head entered into the agreements. (XC ¶¶ 32, 33.) Cross-defendants maintain that they did not conceal any material facts because they were adequately capitalized when those agreements were executed.

Cross-defendants present evidence that, prior to entering into the agreements, they raised $5.5 million, which was sufficient to pay the development fees for the games. (UMF 3-5, 7.) Based on this evidence, cross-defendants may not have concealed any material facts. Accordingly, the burden shifts to cross-complainant Nine Realms, Inc. dba Human Head to demonstrate the existence of a material fact that cross-defendants may have concealed.

Human Head does not dispute cross-defendants’ assertion regarding the funds they raised. (Resp. to UMF 3-5, 7.) Instead, Human Head contends that cross-defendants obtained another investment to finance the payment of additional milestones. (UMF 24, 25.) However, as Human Head concedes, the additional milestones were added after the Rune II agreement was executed. (Resp. to UMF 24.) The fraudulent concealment cause of action is based on concealment at the time of execution of the agreements, not afterward. (XC ¶ 33.)

Based on Human Head’s failure to demonstrate a triable issue concerning cross-defendants’ inability to pay the milestone payments at the time it entered into the Rune II and Oblivion Song agreements, the motion as to Issue No. 1 is GRANTED.

C. ISSUE 2: Cross-Defendants are entitled to summary adjudication of the cross-claim for fraudulent concealment on the grounds that, as a matter of law, Human Head cannot demonstrate that Cross-Defendants intended to induce detrimental reliance or action and thus Human Head cannot prove this essential element of its claim.

Human Head alleges that cross-defendants intended to induce it to enter into the Rune II and Oblivion Song GDAs by concealing their inability to pay milestone payments. (XC ¶ 35.) Cross-defendants present evidence that they may not have had any intent to induce detrimental reliance because they had the ability to make the milestone payments at the time Human Head entered into the GDAs. (UMF 59-61, 64.) As with Issue No. 1 discussed above, Human Head did not present any evidence that cross-defendants were not capable of making the milestone payments set forth in the GDAs at the time Human Head entered into them. (Resp. to UMF 59-61, 64.) Accordingly, Human Head fails to demonstrate a triable issue concerning intent to induce detrimental reliance.

The motion as to Issue No. 2 is GRANTED.

D. ISSUE 3: Cross-Defendants are entitled to summary adjudication of the cross-claim for fraudulent concealment on the grounds that, as a matter of law, Human Head cannot prove it suffered damages and thus Human Head cannot prove this essential element of its claim.

Cross-defendants contend that Human Head cannot allege damages because Human Head was paid for all approved milestones. (UMF 132, 135-37, 142-144, 149, 160, 170.) Human Head contends that it is owed $87,500 under the Rune II GDA and $450,000 under the Oblivion Song GDA. (Opp. at 25:1-3.) Human Head also contends that had it accepted a discounted rate, which resulted in out-of-pocket expenses to pay its employees and contractors, but would have never agreed to the rate had it known of cross-defendants’ inability to pay. (Opp. at 25:3-12.)

However, Human Head does not provide any evidence of these assertions. “A triable issue of fact can only be created by a conflict of evidence, not speculation or conjecture.” (Pipitone v. Williams (2016) 244 Cal.App.4th 1437, 1453.) The response to UMF 52 cited in the opposition pertains to cross-defendant ESDFOS, LLP’s alleged refusal to agree to the deliverables for Milestone 10.

Based on Human Head’s failure to sufficiently demonstrate that it may have been entitled to damages in excess of the amounts it was paid, the motion as to Issue No. 3 is GRANTED.

E. ISSUE 4: Ragnarok is entitled to summary adjudication of the first cross-claim for breach of contract on the grounds that, as a matter of law, it fully performed under the Rune II Game Development Agreement and thus Human Head cannot prove this essential element of its claim.

Cross-defendant Ragnarok Game, LLC (“Ragnarok”) maintains that it fully performed under the Rune II GDA by paying for all approved milestones. (UMF 185, 188–190, 195–97, 209.) However, Human Head demonstrates a triable issue concerning whether Ragnarok failed to pay the milestone payment for completion of Deathmatch Milestone 3. Ragnarok contends that it was not required to pay for this milestone because the need for several outstanding fixes remained. (UMF 203-207, 242.) However, on September 10, 2019, Ragnarok sent an email stating, “Death Match and Team Death Match are approved.” (Resp. to UMF 203, 206, 207, 242.) The email contained no mention of any necessary fixes. After approval, Human Head was required to send an invoice, which Ragnarok was required to pay within 30 days of receipt. (Ibid.)

Even though the Rune II GDA gave Ragnarok discretion to approve or disapprove any deliverable (UMF 181), such discretion was still required to have been exercised in good faith. (See Locke v. Warner Bros, Inc. (1997) 57 Cal.App.4th 354, 365, 367 [finding that discretion granted in contract must be exercised honestly and in good faith under implied covenant of good faith and fair dealing].) Even though the implied covenant of good faith and fair dealing was not expressly mentioned in the Cross-Complaint, it is implied in all contracts, including the Rune II GDA upon which the first cause of action is based. (Id. at 363; XC ¶¶ 20, 24.)

Ragnarok contends that the implied covenant is inapplicable because the Rune II GDA requires a non-discretionary kickoff payment that constitutes adequate consideration for the discretion granted to Ragnarok, thereby eliminating any need for the implied covenant. (See Third Story Music, Inc. v. Waits (1995) 41 Cal.App.4th 798, 807.) Notably, the Locke court distinguished Third Story by noting that, in Third Story, the agreement expressly provided for the right to refrain from marketing the subject recordings. (Locke, 57 Cal.App.4th at 366.) Here, similar to the contract in Locke, the Rune II agreement provided Ragnarok with discretion to approve or disapprove deliverables, as opposed to a right to refrain. (UMF 181.) “‘[W]here a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.’ [Citations.]” (Locke, 57 Cal.App.4th at 363, quoting Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 923, internal quotations omitted.)

Based on Ragnarok’s email indicating unequivocal approval, Human Head demonstrates a triable issue regarding whether Ragnarok’s subsequent assertion of necessary fixes was made in good faith. The issue of whether Ragnarok made the required payment for Deathmatch Milestone 3 is triable.

Further, Human Head demonstrates a triable issue concerning whether it was entitled to payment for Milestone 23. Ragnarok contends that Human Head was not entitled to payment because the need for additional fixes remained. (UMF 199, 202, 208.) However, Human Head presents evidence that Ragnarok suggested paying the remaining $67,500 due upon launch of Rune II. (Resp. to UMF 199, 202, 208.) Human Head performed additional fixes, and Ragnarok approved the launch of Rune II. (Ibid.) Based on Ragnarok’s approval of the launch, Human Head demonstrates a triable issue concerning whether Ragnarok’s refusal to approve Milestone 23 was in good faith.

The motion as to Issue No. 4 is DENIED.

F. ISSUE 5: Ragnarok is entitled to summary adjudication of the first cross-claim for breach of contract on the grounds that, as a matter of law, Human Head failed to perform under the Rune II Game Development Agreement.

For the reasons discussed above with respect to Issue No. 4, Human Head demonstrates a triable issue concerning whether it completed Deathmatch Milestone 3 and Milestone 23 in compliance with the Rune II GDA and whether Ragnarok withheld approval in bad faith, thereby creating a triable issue regarding whether Human Head failed to perform under the Rune II GDA. (See Resp. to UMF 238, 241, 245, 247.)

The motion as to Issue No. 5 is DENIED.

G. ISSUE 6: Ragnarok is entitled to summary adjudication of the first cross-claim for breach of contract on the grounds that, as a matter of law, Human Head cannot prove it suffered damages, and thus Human Head cannot prove this essential element of its claim.

For the reasons discussed above with respect to Issue No. 4, Human Head demonstrates a triable issue concerning whether it is owed payment for completing Deathmatch Milestone 3 and Milestone 23. (See UMF 277, 280, 281, 284-286.)

The motion as to Issue No. 6 is DENIED.

H. ISSUE 7: ESDFOS is entitled to summary adjudication of the second cross-claim for breach of contract on the grounds that, as a matter of law, it fully performed under the Oblivion Song Game Development Agreement and thus Human Head cannot prove this essential element of its claim.

Cross-defendant ESDFOS, LLP (“ESDFOS”) maintains that it fully performed under the Oblivion Song GDA by paying for all approved milestones. (UMF 303, 313.) Human Head demonstrates that ESDFOS may have withheld approval for Milestone 9 in bad faith. ESDFOS contends that Human Head never provided the finalized deliverables for Milestone 10, a prerequisite for approval of Milestone 9. (UMF 307.) However, through the declaration of Chris Rhineheart, Human Head asserts that it provided the required list of deliverables shortly after delivering Milestone 9. (Resp. to UMF 307.) Rhineheart also declares that Human Head continued working on the game based on ESDFOS’s requests and had completed Milestone 10 when ESDFOS used the Milestone 10 deliverable list as a technicality to not approve Milestone 9. (Resp. to UMF 307, 308.)

Based on Rhineheart’s declaration, Human Head demonstrates a triable issue concerning whether ESDFOS withheld approval of Milestone 9 in bad faith, thereby demonstrating a triable issue concerning whether ESDFOS breached the GDA by failing to pay for Milestone 9. Even if Rhinehart was not the most knowledgeable person concerning the development of Oblivion Song, the statements in Rhinehart’s declaration constitute evidence a trier fact could credit due to his position as one of the founders of Human Head. (Rhineheart Decl. ¶ 2; see Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 [opposing evidence viewed in light most favorable to opposing party on summary judgment].)

The motion as to Issue No. 7 is DENIED.

I. ISSUE 8: ESDFOS is entitled to summary adjudication of the second cross-claim for breach of contract on the grounds that, as a matter of law, Human Head failed to perform under the Oblivion Song Game Development Agreement.

For the reasons discussed above with respect to in Issue No. 7, Human Head demonstrates a triable issue concerning whether ESDFOS withheld approval of Milestone 9 in bad faith, thereby demonstrating a triable issue regarding whether Human Head failed to perform under the Oblivion Song GDA. (See Resp. to UMF 334.)

The motion as to Issue No. 8 is DENIED.

J. ISSUE 9: ESDFOS is entitled to summary adjudication of the second cross-claim for breach of contract on the grounds that, as a matter of law, Human Head cannot prove it suffered damages and thus Human Head cannot prove this essential element of its claim.

For the reasons discussed above with respect to Issue No. 7, Human Head demonstrates a triable issue concerning whether it is owed payment for completing Milestone 9. (See UMF 361.)

The motion as to Issue No. 9 is DENIED.