Total Recall Technologies v. PALMER LUCKEY and OCULUS VR, LLC

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
TOTAL RECALL TECHNOLOGIES,
Plaintiff-Appellant,
v.
PALMER LUCKEY and OCULUS VR,
LLC,
Defendants-Appellees.
No. 17-15668
D.C. No. 3:15-cv-02281-WHA
MEMORANDUM*
Appeal from the United States District Court
for the Northern District of California
William Alsup, District Judge, Presiding
Argued and Submitted March 15, 2018
San Francisco, California
Before: WALLACE and BERZON, Circuit Judges, and BERG,** District Judge.
Plaintiff appeals from summary judgment on its breach of contract claim
against Defendants. It also appeals from the dismissal of its conversion and breach
of implied covenant of good faith claims. We affirm in part and reverse and
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
** The Honorable Terrence Berg, United States District Judge for the
Eastern District of Michigan, sitting by designation.
FILED
JUL 19 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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remand in part.
1. The district court erred in concluding that state law governed the procedural
question of whether Defendants can challenge Plaintiff’s authority to file
this action. See Cuprite Mine Partners LLC v. Anderson, 809 F.3d 548, 554
(9th Cir. 2015). We remand for the district court to consider this question in
the first instance under federal law, including the possible applicability of
either Federal Rule of Civil Procedure 9(a)(1)(A) or 9(a)(1)(B). De Saracho
v. Custom Food Mach., Inc., 206 F.3d 874, 878 (9th Cir. 2000).
Specifically, the district court should consider whether the issue of a
partner’s authorization to sue on behalf of a partnership is one of “capacity”
within the meaning of Rule 9(a)(1)(A), or “authority” within the meaning of
Rule 9(a)(1)(B), or whether there is some other basis on which Defendants
can raise the issue. If the district court concludes that a partner’s
authorization to sue on behalf of a partnership is an issue of “capacity” or
“authority” under Rule 9(a), then it should determine whether Plaintiff
offered facts sufficient to establish its authority or capacity to sue. The
district court should also consider whether, even if Defendants could raise
the issue, and even if Plaintiff’s attempted retroactive ratification was valid,
the statute of limitations had already expired on Plaintiff’s claims.
2. The district court properly dismissed Plaintiff’s claim for conversion.

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Luckey’s alleged possession of the first prototype was not “wrongful”
because Seidl voluntarily dispossessed himself of it by returning it to
Luckey and never requested its return. See Tyrone Pac. Int’l, Inc. v. MV
Eurychili, 658 F.2d 664, 666 (9th Cir. 1981), citing Hartford Fin. Corp. v.
Burns, 96 Cal.App.3d 591, 598 (1979).
3. The district court properly dismissed Plaintiff’s claim for breach of the
implied covenant of good faith and fair dealing because the claim was
based solely on the failure to perform express contractual duties. Careau &
Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990). We
reject Plaintiff’s attempt to distinguish Careau on the basis that Luckey
deliberately breached the contract. First, the plaintiff in Careau also alleged
a deliberate breach. See id. at 1392 (explaining that plaintiff alleged
defendants gave a “deceitful and pretextual explanation for such refusal [to
perform the contract]”). Second, Careau held that “absent those limited
cases where a breach of a consensual contract term is not claimed or
alleged, the only justification for asserting a separate cause of action for
breach of the implied covenant is to obtain a tort recovery.” Id. at 1395.
Restated in the affirmative, when plaintiff is alleging breach of an express
contractual term, as here, the only cognizable implied-duty claim is in tort.
Recovery in tort requires the presence of a “special relationship,” such as

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that “between insurer and insured,” something the parties here, like those in
Careau, do not have. Id. at 1400-01.
AFFIRMED in part; REVERSED and REMANDED in part.
Each party shall bear its own costs on appeal.

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