Judge: Stephen P. Pfahler, Case: 21STCV45313, Date: 2024-04-19 Tentative Ruling

Case Number: 21STCV45313    Hearing Date: April 19, 2024    Dept: 68

Dept. 68

Date: 4-19-24

Case #21STCV45313

Trial Date: 9-23-24

INJUNCTION

MOVING PARTY: Plaintiff, Adaptive Camless Technology, LLC

RESPONDING PARTY: Defendant, Regents of the University of California

RELIEF REQUESTED

Motion for Preliminary Injunction

SUMMARY OF ACTION

Plaintiff Adaptive Camless Technology, LLC (ACT) was formed by Dr. Peter Sinsheimer, former director of the UCLA Sustainable Technology and Policy Program. Plaintiff alleges Dr. TC Tsao, and Dr. Mitchell Spearrinm, currently engineering professors at University of California Los Angeles (UCLA), also participated as “founders,” though both faculty members deny any such business relationship.

ACT itself formed as a result of an “invention report,” for a jointly developed “adaptive camless technology” to a UCLA run program identified as the Technology Development Group (TDG), and the filing of three patent applications. On December 19, 2019, ACT entered into an agreement with Defendant, Regents of the University of California (Regents), whereby the parties agreed both ACT and Regents exclusively owned the license to the technology, with ACT retaining discretion for “the use, sell, offer for sale, import, license, provide/lease and otherwise dispose of” of the technology. The “Exclusive License” was conditioned on certain milestones for ACT, including certain levels of outside investment.

ACT met its first milestone, but contends Covid-19 disruptions disrupted and delayed later milestones. The parties agreed to two six month extensions. Notwithstanding the second extension to December 31, 2021, ACT alleges Regents issued a September 7, 2021, “default letter” claiming a milestone violation due to the failure to reach said level of investment by December 31, 2020 (the date prior to the purported 12-month extension). Notwithstanding, Regents represented an extension until November 7, 2021. After further exchange, Regents represented termination of the agreement on December 20, 2021.

On December 13, 2021, Plaintiff filed a complaint for Declaratory Relief, and Anticipatory Breach of Contract. On December 17, 2021, the court issued a temporary restraining order enjoining Regents from terminating the license. On March 1, 2022, the court issued a preliminary injunction for 60 days, whereby Sinsheimer was allowed to invest $313,080 towards the project in order to meet milestone 5.2a. The court also ordered Plaintiff to post a $500 bond.

On March 1, 2021, Regents issued a “Second Default Letter” alleging new and different milestone failures regarding “Commercially Reasonable Efforts” to develop licensed products, and prototype design and build requirements. ACT responded on April 16, 2022, noting both the 60-day injunction as well as factual responses to the milestone default claims.

On May 16, 2022, Plaintiff filed its first amended complaint for Declaratory Relief and Anticipatory Breach of Contract. Defendant answered the first amended complaint on September 14, 2023.

On February 14, 2024, the court granted the temporary restraining order enjoining the termination of any license pending hearing on the motion for preliminary injunction.

RULING: Granted.

Plaintiff Adaptive Camless Technology, LLC (ACT) moves for a preliminary injunction against Defendant, Regents of the University of California (Regents), from terminating the exclusive development license agreement. Following the second notice of default upon the expiration of the first preliminary injunction, the parties subsequently entered into a standstill agreement. This agreement lapsed in February 2024. [Declaration of Robert Loewy.] The motion comes following the temporary restraining order issued on February 14, 2024, based on the February 15, 2024, intended termination date from Regents.

Plaintiff moves for relief to preserve the status quo pending adjudication of the license agreement on the merits. Plaintiff maintains no default under the terms occurred, and significant harm will occur if Regents remain allowed to cancel the agreement prior to resolution of the underpinning legal disputes. Regents in opposition focuses on the “commercially reasonable efforts” section of the License Agreement. Regents contend that after nearly 52 months (4.5 years) of efforts, ACT continues to provide no engagement in research, development, manufacturing, marketing, or sale of any licensed product utilizing the subject technology. Regents deny any and all agreement for the use of UCLA faculty and students, and insist the agreement required use of outside facilities. ACT in reply challenges the argument of Regents as seeking to rewrite the terms and understanding of the agreement. ACT again reiterates irreparable harm if injunctive relief is not granted.

In ruling on a motion for preliminary injunction, the court first considers both the likelihood of prevailing on the merits and irreparable harm. (Millennium Rock Mortg., Inc. v. T.D. Service Co. (2009) 179 Cal.App.4th 804, 812.) “An evaluation of the relative harm to the parties upon the granting or denial of a preliminary injunction requires consideration of: ‘(1) the inadequacy of any other remedy; (2) the degree of irreparable injury the denial of the injunction will cause; (3) the necessity to preserve the status quo; [and] (4) the degree of adverse effect on the public interest or interests of third parties the granting of the injunction will cause.’” (Vo v. City of Garden Grove (2004) 115 Cal.App.4th 425, 435.) “‘[T]he more likely it is that plaintiffs will ultimately prevail, the less severe must be the harm that they allege will occur if the injunction does not issue .... [I]t is the mix of these factors that guides the trial court in its exercise of discretion.’” (Right Site Coalition v. Los Angeles Unified School Dist. (2008) 160 Cal.App.4th 336, 342.) “The ultimate questions on a motion for a preliminary injunction are (1) whether the plaintiff is 'likely to suffer greater injury from a denial of the injunction than the defendants are likely to suffer from its grant,’ and (2) whether there is ‘a reasonable probability that the plaintiffs will prevail on the merits’” (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 408. Procedurally, an application for a preliminary injunction, must be based upon sufficient evidence.  (Code Civ. Proc., §527 subd. (a); Bank of America v. Williams (1948) 89 Cal.App.2d 21, 29.)

“[T]he general rule is that an injunction is prohibitory if it requires a person to refrain from a particular act and mandatory if it compels performance of an affirmative act that changes the position of the parties.” (Davenport v. Blue Cross of California (1997) 52 Cal.App.4th 435, 446.) “An injunction designed to preserve the status quo as between the parties and to restrain illegal conduct is prohibitory, not mandatory, and does not require heightened appellate scrutiny.” (Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1048.) “The granting of a mandatory injunction pending trial is not permitted except in extreme cases where the right thereto is clearly established.” (Teachers Ins. & Annuity Assn. v. Furlotti (1999) 70 Cal.App.4th 1487, 1493.)

Probability of Success on the Merits

The action and instant motion appear driven by shareholder Sinsheimer, and opposed, at least in part by fellow founders, TC Tsao and Spearrin. With this context, the court considers the agreement.

It remains undisputed that ACT met the first fundraising milestone when it complied with the March 1, 2022, preliminary injunction requiring an additional $313,080 investment. The dispute therefore requires interpretation of the “commercially reasonable efforts” clause regarding use of labor outside of UCLA.

The unredacted portion of the License Agreement requires development of a prototype by December 31, 2021, a demonstrated working prototype by December 31, 2022, and completed initial performance testing of said licensed working prototype by September 30, 2023. [Declaration of Peter Sinsheimer, ¶ 18, Ex. 9: License Agreement, 5.2(B-D).] Due to Covid-19 impacts, the parties also engaged in extensions of the agreement timelines. [Sinsheimer Decl., ¶ 23, Ex. 14.]

“B. By December 31, 2022, complete design of prototype Licensed Product.

C. By December 31, 2023, build and demonstrate operation of a working prototype Licensed Product.

D. By September 30, 2024, complete initial performance testing of a prototype Licensed Product, simulating engine use for baseload, peak, and backup power generation applications.

E. By March 31, 2025, obtain two customer letters of commitment to purchase Licensed Products.

F. By September 30, 2025, execute a vendor agreement with a manufacturing partner for the production of a Licensed Products that is an Other Engine Products.

G. By March 31, 2026, complete a customer purchase order (a First Commercial Sale) for a Licensed Product that is an Other Engine Product.

H. By March 31, 2027, deliver a functioning Licensed Product that is an Other Engine Product to a customer.

I. By December 31, 2028, build and test a Licensed Product that is a Transportation Product.”

The later extensions regarding executed vendor agreements, et al., are not before the court for purposes of the subject motion but provided for context.

The crux of the dispute arises from the interpretation of the development clause. Notwithstanding the default notice from Regents linking the commercial development milestone to offsite activities [Sinsheimer Decl., ¶¶ 24-25, Ex. 15], neither party cites to any unredacted language regarding mandatory offsite development during the developmental phase of the technology, or the exclusion of UCLA controlled facilities, faculty or student involvement. The notice of said condition only first apparently appears in the December 13, 2018, e-mail from Edward Beres regarding use of university resources for private development. [Declaration of Edward Bares, ¶ 4, Ex. 2.] A second notice referencing on-campus development was also presented on May 5, 2021. [Id., Ex. 3.]

ACT represents that any and all development was intended to occur with UCLA employees and students utilizing UCLA provided facilities. [Declaration of Peter Sinsheimer.] Regents rely on “University policy,” which only allows for utilization of the University’s resources undertaken on behalf of the University itself, rather than a private entity. [Declaration of Carolyn Chang, ¶¶ 4-5, Ex. 3-4.] Regents cite to the integration clause with the License Agreement as a means of seeking to block out any extrinsic agreements, but also lack any citation in the agreement incorporating “University policy.” Regents also reference section 5.1 of the agreement, which defines “commercially reasonable efforts,” as ongoing efforts for the development a market potential product. The term specifically excludes halted efforts towards developments for a period of greater than 24 months. Regents maintain no product development occurred outside of UCLA over a 24-month period at the time of the March 1, 2022, notice. ACT vaguely maintains off-premises work continues or perhaps will occur.

In addition to the lack of terms regarding developmental work location, both sides offer challenges to the introduction of outside understandings, while both in fact relying on beneficial rules or inferences in their favor. The arguments of the parties provide minimal legal citation.

“‘A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.’ (Civ. Code, § 1636.) ‘The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.’ (Civ. Code, § 1638.) ‘When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of this Title.” (Civ. Code, § 1639.) “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.’ (Civ. Code, § 1641.) ‘A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.’ (Civ. Code, § 1643.) ‘The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.’ (Civ. Code, § 1644.) ‘However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract.’ (Civ. Code, § 1648.) ‘Repugnancy in a contract must be reconciled, if possible, by such an interpretation as will give some effect to the repugnant clauses, subordinate to the general intent and purpose of the whole contract.’ (Civ. Code, § 1652.) ‘Stipulations which are necessary to make a contract reasonable, or conformable to usage, are implied, in respect to matters concerning which the contract manifests no contrary intention.’ (Civ. Code, § 1655.)” (Siligo v. Castellucci (1994) 21 Cal.App.4th 873, 880–881.)

“The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. (Civ.Code, § 1636.) If contractual language is clear and explicit, it governs. (Id., § 1638.) On the other hand, ‘[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.’” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264–1265.) The parol evidence rule “provides that when parties enter an integrated written agreement, extrinsic evidence may not be relied upon to alter or add to the terms of the writing. (Citation.) ‘An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.’” (Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169, 1174.)

In addition to the documented reasons in the notices of default, Regents also seek to establish its limited relationship or even arguable disassociation with UCLA resources from ACT via declarations of faculty. The declaration of Tsao denies any actual business relationship with ACT and maintains any and all work done on the subject technology was on behalf of UCLA. Spearrin also denies any affiliation with the ACT entity. The court accepts the unchallenged declarations as indicative of the lack of any individual business relationships between the individual professors and ACT but finds the declarations in no way materially impacts the interpretation of the licensing agreement.

The court agrees with the understanding of Sinsheimer that the purpose of the licensing agreement was to encourage commercial production utilizing UCLA developed technology. In looking at the plain language of the unredacted portions of the agreement, Regents acknowledge certain patented technology “made in course of research at UCLA.” The licensing agreements form with third party entities for the apparent purpose of monetizing patented technology incorporated into future developed products. The technology itself is not necessarily economically viable on its own, but when utilized in a finished product, conveys value to the Regents in the form of license payments. Regents explicitly acknowledge “patent rights” in Appendix A, which ostensibly identifies subject patented technology utilized or potentially available pursuant to the licensing agreement. Thus, the admitted continued research participation of UCLA faculty and students familiar with the subject patented technology, which may include exploring means for further development or incorporation into potential products, remains consistent with Regents’ ownership of said patents provided in the license agreement.

While it remains acknowledged and undisputed that UCLA disallows university resources for development of purely commercial products owned by an outside entity, Sinsheimer understood said rule as not applying to the research process underpinning the development of said product prototype for purposes of the manufacture of an eventually commercially viable product. How and whether said patents lead to the development of a manufactured, marketable camless product for use in intended applications, and at what point the product is exclusively owned by ACT with licensing fees paid to Regents for use of said incorporated patented technology lies at the core of the disputed agreement.

It remains undisputed any commercially available manufactured items for sale to third party customers would be developed off premises. At the time of the instant motion, no functional manufacturing prototype appears to exist. The deadline for said product and offsite manufacturing in fact remains outstanding for later dates, as addressed in the revised development milestone extensions. [Reply Declaration of Peter Sinsheimer.] Meanwhile, it remains possible that certain deadlines lapsed (e.g. a designed and built prototype by December 31, 2023), but said potential missed deadline was not part of any notice of default.

Thus, the parties seek guidance on an issue regarding the meaning of the development process as presented in the actual license agreement. Given the integration clause and challenge to any parol evidence regarding the intention of the parties, the court remains limited to interpretation of the contract. The court finds Sinsheimer’s understanding of the agreement reasonable within the language and apparent intent of Regents to monetize patent technology developed in the course of university research. Further improvements, testing, etc. associated with the eventual development of an off-site manufactured commercially viable product remains an allowable activity by UCLA faculty and staff barring an amendment or novation of the license agreement clarifying University policy on the development process. How said research is conducted and by who, however, remains within the control of UCLA and Regents. The court in no way interprets the agreement as to the rights and obligations of the parties in the execution of the agreement, or otherwise addresses the other looming deadlines for product milestones leading to intended offsite manufacture.

The court therefore finds the terms of the contract, as presented in the subject motion, support a finding of a probability of success on the merits. The court finds no breach of the agreement allowing for termination on the basis of the violation of the University’s policy for purposes of the subject motion. Joint research may continue, with the intention of the development of a working prototype, but the court in no way forecasts or offers any advisory opinion on other potential developmental milestone disputes.

Irreparable Harm

ACT contends Cancellation of the agreement will significantly disrupt any fundraising thereby allowing further development of products. Regents counter that the subject action presents nothing more than a claim otherwise resolved by monetary damages. Regents will suffer from further delays in its own efforts to develop the technology.

“‘The granting or denial of a preliminary injunction does not amount to an adjudication of the ultimate rights in controversy. It merely determines that the court, balancing the respective equities of the parties, concludes that, pending a trial on the merits, the defendant should or that he should not be restrained from exercising the right claimed by him.’ (Citations.) The general purpose of such an injunction is the preservation of the status quo until a final determination of the merits of the action. (Citations.) Thus, the court examines all of the material before it in order to consider ‘whether a greater injury will result to the defendant from granting the injunction than to the plaintiff from refusing it; * * *’” (Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 528.) “[A] principal objective of a preliminary injunction ‘is to minimize the harm which an erroneous interim decision may cause,’ and thus a court faced with the question whether to grant a preliminary injunction cannot ignore the possibility that its initial assessment of the merits, prior to a full adjudication, may turn out to be in error.” (White v. Davis (2003) 30 Cal.4th 528, 561.)

The limited legal arguments and conflicts in interpretation of the underlying licensing agreement favor preservation of the status quo pending further adjudication on the merits. While any monetary value for a successfully developed and marketed product can certainly be readily determined, the court agrees with ACT that disruption of activities prior to adjudication on the merits may cause harms to business relations developed by ACT, which are not readily overcome simply by monetary compensation.

Balance of Equities

The balance of equities also favors ACT pending adjudication of the action based on circumstances regarding the terms of the agreement and disruption to ACT on uncertain grounds. Given the September trial date, and ongoing history of the parties’ prior voluntary efforts, preservation of the status quo for an additional five plus months insufficiently demonstrates material prejudice to Regents. The court also finds the ongoing right to attempt to development pending further adjudication of the claim, without premature disruption based on unresolved legal issues, constitutes a valid consideration. Lost research and development time on a technology that may also be progress in competing labs and/or universities serves neither party well.

The motion for preliminary injunction is therefore granted. The court orders Regents enjoined from termination of the agreement based on utilization of school resources pending trial on the merits. In granting this preliminary injunction, the court only addresses the operative agreement within the operative timeline. Any delays on the trial and potential lapses of deadlines are not considered. The court also specifically declines to consider any arguments regarding potential future enforcement based on any University policy rules, as seen applicable. The court in no way otherwise orders any form of mandatory relief, such as requiring Regents to provide access to resources or facilities. The motion lacks sufficient legal address regarding the validity of the policies (other than a reference to the later presentation of the claim in the default notice), and the court will NOT consider any such issue. Any change in conduct by Regents, however, may lead to new claims against Regents, and further delay the trial date. The court advises the parties to continue with meet and confer efforts.

Trial remains set for September 23, 2024.

ACT to give notice.