Judge Mitchell L. Beckloff, Case Number: 24STCV04837, Date: 2024-03-27 Tentative Ruling

Judge: Mitchell L. Beckloff, Case: 24STCV04837, Date: 2024-03-27 Tentative Ruling

Plaintiff, LG Energy Solutions, LTD., seeks a preliminary injunction restraining Defendants, IT Asset Partners, Inc. (ITAP), ITAP Operations Panama, Inc. (ITAP Panama), Batteryevo, Inc., Panama Energy Technologies, S.A. dba Lions Battery, Robert Mullaney, and Rene Garcia (and their agents) from:

· modifying, rewrapping, remanufacturing, repurposing, reselling, and/or distributing in any form the energy storage system (ESS) products, or causing such modifying, rewrapping, remanufacturing, repurposing, reselling, and/or distributing;

· engaging in any activity that further violates the terms of the contracts between Plaintiff and Defendants regarding the disposal and recycling of the ESS products;

· destroying, concealing, or altering any documents, electronic records, or other evidence related to the modification, rewrapping, remanufacturing, repurposing, resale and/or distribution of the ESS products; and

· transporting the ESS products without the use of United Nations Certified damaged, defective or recalled (DDR) packaging.

Plaintiff’s unopposed request for judicial notice of Statements of Information filed with the California Secretary of State (Exhibits A and B) is granted. (Evid. Code, § 452, subd. (h).)

Plaintiff is a chemical-based battery manufacturer and distributor. Plaintiff entered into a Service Agreement, Supplemental Agreement, and Sales Contract (collectively, the Contracts) with Defendant ITAP to sell its second-hand or returned residential energy storage unit (RESU) ESS lithium-ion batteries[1] for precious metal extraction and recycling purposes only. Defendant ITAP represented such tasks would be performed at its Panama facility. Plaintiff repeatedly requested proof of disposal/recycling of the batteries through certificates of recycling and destruction. Defendant ITAP never provided the requested certificates.

On October 2, 2023, Defendant ITAP’s representative, Defendant Garcia, notified Plaintiff its “recycling equipment [will be] installed and ready to shred by end of 2023. Once we start shredding, we will begin supplying the Certificates of Recycling/Destruction as agreed.” (Comp. ¶ 36.) On information and belief, however, the recycling equipment still has not been installed at Defendant ITAP’s Panama facility, and none of the batteries sold and transferred to Defendant ITAP have been destroyed or recycled according to the contracts.

Defendant ITAP has not provided any evidence or certificate of disposal of the batteries. To the contrary, on information and belief, Defendant ITAP and/or one or more of the other Defendants began to modify the batteries or cause them to be modified and resold them in the United States through Defendant BatteryEVO, and in Panama through Defendant Lions Battery. On information and belief, in violation of its contracts with Plaintiff, Defendant ITAP and/or one or more of the other Defendants is modifying the batteries or causing them to be modified by removing the wrapper on the products—originally manufactured by Plaintiff’s predecessor entity— and rewrapping them or incorporating them into new battery products with “BatteryEVO” and “Lions Battery” branding to make them appear as if they are BatteryEVO and Lions Battery’s products. Defendants continue to engage in the unlawful conduct of modifying, repurposing, and reselling batteries, which were supposed to be recycled.

The complaint alleges causes of action for (1) fraud, (2) breach of contract, (3) intentional interference with contractual relations, and (4) unfair competition.

“[A] court will deny a preliminary injunction unless there is a reasonable probability that the plaintiff will be successful on the merits, but the granting of a preliminary injunction does not amount to an adjudication of the merits.” (Beehan v. Lido Isle Community Assn. (1977) 70 Cal.App.3d 858, 866.) “The function of a preliminary injunction is the preservation of the status quo until a final determination of the merits.” (Ibid.)

“Trial courts traditionally consider and weigh two factors in determining whether to issue a preliminary injunction. They are (1) how likely it is that the moving party will prevail on the merits, and (2) the relative harm the parties will suffer in the interim due to the issuance or nonissuance of the injunction.” (Dodge, Warren & Peters Ins. Services, Inc. v. Riley (2003) 105 Cal.App.4th 1414, 1420.) “[T]he greater the . . . showing on one, the less must be shown on the other to support an injunction.” (Ibid. [quoting Butt v. State of California, (1992) 4 Cal.4th 668, 678].) The burden of proof is on the plaintiff as the moving party “to show all elements necessary to support issuance of a preliminary injunction.” (O'Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481.)

Preliminary injunctive relief requires the use of competent evidence to create a sufficient factual showing on the grounds for relief. (See, e.g., Ancora-Citronelle Corp. v. Green (1974) 41 Cal.App.3d 146, 150.) A plaintiff seeking injunctive relief must also show the absence of an adequate damages remedy at law. (Code Civ. Proc., § 526, subd. (a)(4).)

A preliminary injunction ordinarily cannot take effect unless and until the plaintiff provides an undertaking for damages which the enjoined defendant may sustain by reason of the injunction if the court finally decides that the plaintiff was not entitled to the injunction. (See id. at § 529, subd. (a); City of South San Francisco v. Cypress Lawn Cemetery Assn. (1992) 11 Cal.App.4th 916, 920.)

“ ‘The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’);

(c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.’ ” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)

Plaintiff represents Defendants ITAP, Mullaney, and Garcia made false and fraudulent representations to induce Plaintiff to enter into the Contracts. These false representations include, but are not limited to:

(1) On July 15, 2022, Defendant Garcia confirmed Defendant ITAP purchased lithium batteries, ensuring the destruction or recycling of all faulty, recalled, defective, or otherwise unsuitable cells, accompanied by a certificate of destruction/recycling. (Jeong Decl. ¶ 5.)

(2) On July 26, 2022, Defendant Garcia represented to Plaintiff the batteries would be recycled and would not enter the secondary or consumer market. (Jeong Decl. ¶ 9.)

(3) On August 11, 2022, Defendant Garcia confirmed Defendant ITAP would dismantle the recalled battery packs to module level and ship the dismantled battery packs according to packaging and transportation regulations. (Joeng Decl. ¶ 12.)

Plaintiff presents evidence “a whistleblower email” from Eric Lundgren on October 13, 2023 first alerted it to Defendants’ alleged illegal reuse and repurposing of Plaintiff’s recalled batteries. (Joeng Decl. ¶ 18.) Lundgren is the Chief Executive Officer of BigBattery, Inc., and an original founder and former owner of Defendant ITAP; Lungren no longer has any role in Defendant ITAP’s activities.[2] (Lundgren Decl., ¶ 1.) Lundgren became aware of Defendants’ activities when, in March 2023, Defendant ITAP approached BigBattery to discuss BigBattery’s potential interest in a new product line. To that end, Defendant ITAP sent several sample products to BigBattery for evaluation. (Lundgren Decl. ¶ 6.) Upon investigation, BigBattery discovered that “these products incorporated recalled batteries from Plaintiff, including one sample which combusted during testing.” (Lundgren ¶ 7.)

BigBattery notified Defendant ITAP’s Chief Executive Officer, Defendant Mullaney, of its discovery and advised him BigBattery would cease doing business with Defendant ITAP unless it received express assurances Defendant ITAP would never again try and sell them recalled batteries. (Lundgren Decl. ¶ 7.) Defendant Mullaney agreed and “signed a written promise in that regard.” (Lundgren Decl. ¶ 7.)

On July 2, 2023, Defendant ITAP sent employees to BigBattery to retrieve the sample products incorporating Plaintiff’s recalled batteries. (Lundgren Decl. ¶ 8.) Defendant ITAP did not, however, collect all of the products and several of the sample products remain in BigBattery’s possession. (Lundgren Decl. ¶¶ 8, 10.)

On October 13, 2023, Lundgren contacted Plaintiff (and the United States government) to inform it of Defendant ITAP’s activities with Plaintiff’s batteries. (Jeong Decl. ¶ 9.) Plaintiff immediately thereafter launched an active investigation, and by January 11, 2024, verified Lundgren’s claims. (Jeong Decl., ¶ 19.) Plaintiff examined the serial numbers and quick response (QR) codes on battery products provided by Defendant ITAP to BigBattery that remained in BigBattery’s possession. Plaintiff confirming that seven of the batteries matched the recalled and/or defective batteries sold by Plaintiff to Defendant ITAP solely for the purpose of recycling. (Jeong Decl. ¶ 19.)

Plaintiff also presents evidence of a WeChat message thread which Lundgren represents reflects the battery development team at Defendants ITAP and BatteryEVO discussing how to design products incorporating the recalled batteries.[3] (Lundgren Decl. ¶¶ 3, 5, Exhs. A, C.)

Plaintiff also presents an email message from Defendant Garcia to Defendant Mullaney which seemingly shows a strategy to circumvent proper shipping procedures by fabricating shipping dates, bills of lading, and images of sample drums after Plaintiff questioned Defendant ITAP about shipping, storage, and recycling of the batteries. (Lundgren Decl. ¶ 4, Exh. B.) Defendant Garcia wrote:

We told them we were going to dismantle to module level and deliver the modules in the PG I steel drums (as required by regulation). There is no way to be certain what they are going to ask for. They may ask for every BOL or just 1 as a sample. If they ask for a sample load, they may be able to track it and perhaps see the commodity or if it is correctly categorized as hazardous material. David, can you check tracking on the trucks you have shipped out and share with us to see what information is available. So, we should definitely ship out batteries as un3480 lithium-ion batteries, class 9 and leave the packaging box empty so we can fill that in with the text ‘drums’ if possible. So we can provide them to [Plaintiff]. At this point, if we say have already begun shipping they may likely ask for copies of sent shipments. so I think we should say we have not shipped yet. The sooner we get a shipment out the better. Please let me know your thoughts on how best to proceed. It would be ideal if we started shipping these out as un3480 lithium ion batteries, class 9. I also wouldn’t be surprised if they ask for photos of their modules in the drums on a pallet ready to ship or in a container about to be shipped. So let’s keep enough lg modules to pack into drums in case, would be my suggestion.

Plaintiff argues its decision to enter into and sustain the Contracts was based on Defendant ITAP’s alleged deceptive assurances. Further, Plaintiff argues the conduct has resulted in direct financial loss due to the unauthorized sale of the batteries but also ancillary damages, such as reputational harm in the industry and potential legal and regulatory consequences due to the sale of batteries which were recalled for safety concerns. Plaintiff also has been forced to incur substantial legal fees in connection with investigating Defendants’ misconduct, and interacting with government regulatory authorities, including the Consumer Product Safety Commission. (Jeong Decl., ¶ 20.) Plaintiff argues Defendants’ actions also present an unacceptable risk to the safety of the public.

Defendants contend Lundgren has a private vendetta against Defendants and has deceived Plaintiff. Defendants argue Lundgren refuses to return the batteries that BigBattery has in its possession, which were being properly stored by him when they were on better terms. Defendants present the Defendant Mullaney’s declaration who attests the discussion in Exhibit B to Lundgren’s declaration—with Defendant Garcia’s representations quoted above—was about how LG Energy Solution Korea’s batteries can be shipped to Panama for recycling by Defendant IT Asset Partners, inc. and that Lundgren is taking it out of context. (Mullaney Decl., ¶¶ 2-3.)

Defendants also present the declaration of Guowei Hu, but the court finds the evidence entitled to no weight as Hu does not provide any foundation for his assertions. Hu’s statements are also unclear and difficult to follow. Hu does attest, however, Defendant “ITAP did not refurbish any [Plaintiff] batteries.” (Hu Decl. ¶ 15.) As noted by Plaintiff, Hu does not identify who he is, where he works, what he does, or how he has personal knowledge about the facts pertinent to this case. He only represents that he is “a person that knows about IT Asset Partners, Inc. projects with LG Energy Solutions (LG Korea) and LG Energy Solutions Vertech (LG USA).” (Hu Decl. ¶ 2.)[4] This is insufficient to establish a foundation for his testimony.[5]

Based on the evidence presented, the court finds Plaintiff has carried its burden to show a likelihood of prevailing on its claim for fraud as to Defendants ITAP, Garcia, and Mullaney.

Plaintiff presents evidence of the contracts entered into for recycling and disposal of recalled batteries. (Jeong Decl., ¶¶ 13-15, Exhs. B, C, D.) As discussed, Plaintiff’s evidence is sufficient to show Defendant ITAP did not recycle and dispose of all the recalled batteries, and some were found in products sent to BigBattery by Defendant ITAP. Accordingly, the court finds that Plaintiff has carried its burden to show a likelihood of prevailing on the breach of contract claim against Defendant ITAP.

Interference with Contract Alleged Against Defendants ITAP Panama, Lions Battery, and BatteryEVO

“The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) 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.” (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.)

Plaintiff argues the Contracts with Defendant ITAP explicitly banned the repurposing or sale of recalled ESS batteries and required Defendant ITAP to ensure compliance with these terms by any third parties involved in the batteries’ disposal. Plaintiff asserts despite the Contract provisions, Defendants ITAP Panama, Lions Battery, and BatteryEVO, fully cognizant of the contract terms, actively participated in the breach of the Contracts. Plaintiff argues Defendants’ interconnected operations underscore their joint enterprise with Defendant ITAP’s breach. For example, Defendants ITAP and BatteryEVO share leadership and an address, while Defendant Lions Battery is promoted as “powered by BatteryEVO,” which, in turn, lists Defendant Lions Battery as a partner. Furthermore, Defendant ITAP Panama operates out of the same address as a recycling facility to which Defendant ITAP has a majority ownership.

Given all the connections between Defendants, Plaintiff argues it is highly probable Defendants ITAP Panama, Lions Battery, and BatteryEVO had knowledge about the specific terms of the contracts which explicitly forbade the repurposing or resale of recalled batteries. Despite the Contract terms, Defendants have been repurposing the recalled batteries for sale in the United States through Defendant BatteryEVO, and in Panama through Defendants ITAP Panama and/or Lions Battery.

Plaintiff presents evidence Defendant ITAP does not sell battery products directly but sells them under various affiliated companies and brand names. One such affiliated brand is Defendant BatteryEVO, which operates out of the same location as Defendant ITAP. Another brand is Defendant Panama Energy Technologies, S.A. d/b/a Lions Battery, which advertises itself as being “powered by BatteryEVO.” Engineers at BigBattery have examined the battery products on the Defendants BatteryEVO and Lions Battery websites that are available for purchase. The specifications for certain of their products (e.g., capacity, chemistry, voltage, functions, form factor, weight, dimensions, wiring, cell series) match those from the WeChat development messaging thread, as well as the samples they have seen in person, and lead them to believe that they were sold containing Plaintiff’s recalled batteries. (Lundgren Decl., ¶11.)

Based on all the evidence presented thus far, the court finds Plaintiff has carried its burden of showing some ability to prevail on the merits of its interference with contract claim as to Defendants ITAP Panama, Lions Battery and BatteryEVO.

Unfair competition is any unlawful, unfair, or fraudulent business practice or act and unfair, deceptive, untrue, or misleading advertising. (See Bus. & Prof. Code, § 17200.) “An unlawful business practice or act within the meaning of the UCL is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law.” (Bernardo v. Planned Parenthood Federation of America (2004) 115 Cal.App.4th 322, 351.)

As discussed, Plaintiff has shown a likelihood of prevailing on the fraud claim. Further, the evidence shows a likelihood Defendants have violated section 19 of the Consumer Product Safety Act, which prohibits the sale, manufacture, or distribution to consumers of a product that is the subject of a recall of which the Consumer Products Safety Commission has notified the public. (15 U.S.C. § 2068, subd. (a)(2)(B). Accordingly, the court finds Plaintiff has carried its burden to show a likelihood of prevailing on the unfair competition claim as to all Defendants.

The court must determine whether the balance of harms favors issuing the preliminary injunction.

In addressing the second part of the preliminary injunction analysis, the court is required to evaluate the harm the plaintiff is likely to sustain if the preliminary injunction is denied compared to the harm the defendant is likely to suffer if the injunction issued. (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69-70.)

Plaintiff argues the sale of these products presents a significant risk of fire, which poses a serious safety hazard to consumers. Further, this situation also potentially damages Plaintiff’s reputation and consumer trust in an industry where safety is of utmost importance. Thus, Plaintiff has made a strong showing of harm if a preliminary injunction is not issued.

Defendants make no argument regarding the balancing of harm. The court would assume the only harm would be financial to Defendants. That said, the Contracts do not permit the resale of Plaintiff’s defective and recalled ESS batteries. Thus, any harm suffered would be illusory—Defendants are not permitted under the Contracts to rebrand and resell Plaintiff’s defective products.

Based on the foregoing, the court finds that in balancing the relative harms, the evidence weighs in favor of Plaintiff.

For a preliminary injunction to issue, the court must impose a bond. The court sets bond in the amount of $10,000.

Based on the foregoing, Plaintiff’s request for a preliminary injunction is granted. The form of order shall specify the restrictions apply to Plaintiff’s ESS products.

The court does not make an order requiring Defendants to provide a complete and detailed record of all entities to whom Plaintiff’s ESS batteries have been sold. Plaintiff may obtain such information through discovery.

[1] According to Plaintiff, these batteries “store[] surplus energy generated from rooftop solar panels during the daytime to be used to power homes during the evening, or during power outages.” (Memo 2:20-21.)

[2] Defendants assert without evidence Lundgren is a convicted felon. (Opposition 2:25.)

[3] The court cannot verify Lundgren’s representation because the language used in the thread is not English. Defendants do not expressly dispute Lundgren’s summary of the messaging. They allege Lundgren has taken the statements out of context. They assert the discussion concerned another entity’s batteries. (Mullaney Decl. ¶ 4.)

[4] Based on the invoice attached as Exhibit 1 to Hu’s declaration and paragraph 3, it appears Hu works for Defendant ITAP.

[5] Hu contends the photographs and WeChat messaging relates to batteries sold to it an entity different than Plaintiff. (Hu Decl. ¶ 4.) Hu claims the batteries reflected in the photograph in Exhibit A to the Lundgren declaration are batteries sold to Defendant ITAP through the other entity. The invoice provided to corroborate Hu’s statement (Hu Decl., Exh. A) does not reflect LG16S1P batteries, as (apparently) depicted in the photographs.