EDAG Engineering GmbH v. BYTON North America Corporation

Background

EDAG sued BYTON North America Corporation, referred to as BNA in the opinion, for breach of contract. The parties’ arbitration resulted in a final $30 million award for EDAG on June 2, 2021. The court later confirmed that award. EDAG then learned that BNA had transferred 22 patents to Byton Limited between 2019 and 2021; BNA still owned three patents. The opinion states that Byton Limited is BNA’s parent company, is located in Hong Kong, and owns 100% of BNA.

EDAG alleged that the patent transfers were fraudulent transfers intended to put assets beyond creditors’ reach. BNA responded that the transfers followed a longstanding inter-company agreement under which Byton Limited would ultimately own patents resulting from BNA’s research and development. EDAG also sought a receiver, meaning a person appointed to take control of property and sell it to satisfy a judgment.

Motion to Strike

BNA asked the court to strike three filings related to EDAG’s receiver motion. The court found that the filings were not authorized. It granted BNA’s motion to strike Docket Nos. 63, 65, and 68 as they related to the receiver motion, while considering Docket No. 68 for EDAG’s turnover motion.

Motion to Appoint a Receiver

EDAG relied on California Civil Code section 3439.07, which allows remedies for fraudulent transfers, including an injunction or appointment of a receiver. EDAG sought control of patents held by BNA and patents transferred to Byton Limited.

The court held that Byton Limited was an indispensable party under Federal Rule of Civil Procedure 19 because the requested relief would affect property in Byton Limited’s possession and its rights. EDAG had not named Byton Limited as a party. The court therefore stated that it could not consider appointing a receiver to control property held by Byton Limited unless Byton Limited was made a party.

EDAG asked the court to postpone its ruling until a hearing on EDAG’s motion to alter the judgment and add Byton Limited as a judgment debtor. The court held the receiver motion in abeyance pending that motion because adding Byton Limited to the judgment could resolve the joinder problem.

Injunction Motion

EDAG sought an injunction preventing BNA from selling or transferring the 22 patents transferred to Byton Limited. The court rejected EDAG’s argument that it could rely on the arbitrator’s preliminary injunction before that relief had been confirmed by the court. The court also noted that EDAG sought relief involving Byton Limited without first making Byton Limited a party. The court denied EDAG’s ex parte motion for an injunction.

Turnover Motion

EDAG sought an order under California Code of Civil Procedure section 699.040 requiring BNA to turn over intellectual property held by Jama Software Inc. to the U.S. Marshal or a receiver. That statute permits a judgment creditor, after issuance of a writ of execution, to seek an order directing the judgment debtor to transfer property or title documents to the levying officer when there is a demonstrated need.

The court found that a writ of execution had been issued against BNA on December 14, 2021, and that EDAG had requested a levy of the relevant intellectual property. Although BNA argued that EDAG’s reference to “intellectual property” was too vague, the court found that EDAG had already defined the property in its levy request. The court granted EDAG’s ex parte motion for turnover and ordered BNA to transfer its intellectual property in Jama Software Inc.’s possession to the U.S. Marshal at the address specified in the order.

Disposition

The court held in abeyance EDAG’s motion to appoint a receiver, denied EDAG’s ex parte motion for an injunction, granted EDAG’s ex parte motion for turnover, and granted BNA’s motion to strike. The order disposed of Docket Nos. 54, 61, and 67.