Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 1 of 17 Page ID #:1 SAN FRANCISCO 7 RONALD P. SLATES, SBN: 43712 rslates2@rslateslaw.com 8 KONRAD L. TROPE, SBN: 133214 ktrope@rslateslaw.com 9 JESSE YANCO, SBN: 308866 jyanko@rslateslaw.com 10 RONALD P. SLATES, P.C. 500 South Grand Avenue, Suite 2010 11 Los Angeles, CA 90071 Telephone: 213.624.1515 12 Facsimile: 213.624.7536 ATTORNEYS AT LAW F ENWICK & W EST LLP 1 ANDREW P. BRIDGES (CSB No. 122761) abridges@fenwick.com 2 JEDEDIAH WAKEFIELD (CSB No. 178058) jwakefield@fenwick.com 3 TODD R. GREGORIAN (CSB No. 236096) tgregorian@fenwick.com 4 FENWICK & WEST LLP 555 California Street, 12th Floor 5 San Francisco, CA 94104 Telephone: 415.875.2300 6 Facsimile: 415.281.1350 13 Attorneys for Plaintiffs/Judgment Creditors, GIGANEWS, INC. and LIVEWIRE SERVICES, INC. 14 15 UNITED STATES DISTRICT COURT 16 CENTRAL DISTRICT OF CALIFORNIA 17 18 GIGANEWS, INC., a Texas corporation; and LIVEWIRE SERVICES, INC., a 19 Nevada corporation, Plaintiffs, 20 21 v. 22 PERFECT 10, INC., a California corporation; NORMAN ZADA, an 23 individual; and DOES 1-50, inclusive, Defendants. 24 25 26 Case No.: 7:17-cv-05075 COMPLAINT FOR: 1) Violation of Uniform Fraudulent Transfer Act For Actual Fraudulent Transfer Pursuant to California Civil Code § 3439(a)(1) 2) Violation of Uniform Fraudulent Transfer Act For Constructive Fraudulent Transfer Pursuant to California Civil Code § 3439(a)(2)(B) DEMAND FOR JURY TRIAL 27 28 COMPLAINT CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 2 of 17 Page ID #:2 1 Plaintiffs/Judgment Creditors, Giganews Inc. (“Giganews”) and Livewire 2 Services, Inc. (“Livewire”) (“Plaintiffs”) hereby respectfully bring this Complaint 3 and allege as follows: 4 5 INTRODUCTION 1. On March 24, 2015, the United States District Court for the Central 6 District of California, in Perfect 10, Inc. v. Giganews, Inc., et al., Case No. 2:11-cv7 07098-AB-JPR (Honorable Andre Birotte, Jr., presiding) (the “Related Case”), 8 entered judgment in favor of Plaintiffs Giganews and Livewire, and against Perfect 9 10, Inc. (“Perfect 10”), in the amount of $5,637,352.53, which represents an award 10 of attorneys’ fees and costs based upon Plaintiffs’ successful defense against SAN FRANCISCO 12 ATTORNEYS AT LAW F ENWICK & W EST LLP 11 Perfect 10’s unmeritorious claims for copyright infringement. 2. Perfect 10, through Norman Zada (“Zada”) and in conspiracy with 13 him, is a serial litigant that has filed over two dozen suits for copyright 14 infringement. In connection with those lawsuits, Defendants sought to extract 15 settlements from businesses that otherwise would be forced to incur immense 16 amounts of attorneys’ fees and costs in defending against Perfect 10’s suits to final 17 judgment on the merits. 18 3. Plaintiffs Giganews and Livewire believe, and therefore allege, that 19 Perfect 10, through Zada, has continued to send improper notifications of claimed 20 infringement to online service providers and is currently litigating infringement 21 claims in Germany against AOL, Inc. 22 4. As of now (over two years since the judgment), Perfect 10 has not 23 voluntarily paid any amount of the judgment. Instead, Perfect 10, through the 24 unlawful acts of Zada and in conspiracy with him, has intentionally avoided 25 satisfaction of the judgment through a series of fraudulent transfers of Perfect 10’s 26 corporate assets to Zada’s personal possession. These transfers include, but are not 27 limited to, transfers of Perfect 10’s cash in the amount of approximately $1,750,000 28 to Zada’s personal bank accounts and sale of substantially all of Perfect 10’s COMPLAINT 1 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 3 of 17 Page ID #:3 1 physical assets to Zada for less than their true value. These illegal and fraudulent 2 transfers began in or around early 2014. Zada continues to operate Perfect 10’s 3 business while disregarding satisfaction of the judgment, as he personally pays 4 Perfect 10’s corporate expenses through his bank accounts using the unlawfully 5 transferred monies in order avoid attachment. Accordingly, the Court should hold 6 Defendants liable for their unlawful transfers of assets. 7 8 PARTIES 5. Plaintiff Giganews is a Texas corporation with its principal place of 9 business in Austin, Texas. Giganews is a Usenet service provider and owns and 10 operates several Usenet servers. Usenet (or USENET) “‘is an international SAN FRANCISCO 12 connect to one another and [the peers] exchange messages posted by USENET ATTORNEYS AT LAW F ENWICK & W EST LLP 11 collection of organizations and individuals (known as ‘peers’) whose computers 13 users.’” Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657, 663-664 (9th Cir. 2017), 14 quoting with approval Ellison v. Robertson, 357 F.3d 1017, 1074, n.1 (9th Cir. 15 2004). Persons gain access to USENET through a commercial USENET provider 16 such as Giganews or an Internet service provider. Perfect 10, at 663, citing with 17 approval Arista Records, LLC v. Usenet.com, Inc., 633 F.Supp.2d 124, 130 18 (S.D.N.Y. 2009). Giganews provides USENET access to its subscribers over the 19 Internet for a fee. 20 6. Plaintiff Livewire is a Nevada corporation with its principal place of 21 business in Austin, Texas. Livewire also provides USENET access to its 22 subscribers over the Internet for a fee using Giganews servers. Livewire does not 23 own any USENET servers. 24 7. Defendant Perfect 10 is a California corporation with its principal 25 place of business at 11803 Northfield Ct., Los Angeles, California 90077. Perfect 26 10 was the publisher of the adult magazine PERFECT 10, and it now operates an 27 adult website at perfect10.com, which features images of nude and semi-nude 28 female models. COMPLAINT 2 CASE NO. 7:17-cv-5075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 4 of 17 Page ID #:4 1 8. Defendant Norman Zada, also known as Norm Zada, Norman Zadeh, 2 Norm Zadeh, and Dr. Zada, is an individual who resides at 11803 Norfield Court, 3 Los Angeles, California 90077, which is the same address as Perfect 10’s principal 4 place of business. Zada is the sole owner, President, and Chief Executive Officer of 5 Perfect 10. Plaintiffs refer to both Perfect 10 and Zada as “Defendants” in this 6 Complaint. 7 9. Plaintiffs do not know the true names and capacities of defendants, 8 individuals or otherwise, whom they have sued under fictitious names as Does 1 9 through 50. Plaintiffs will amend this Complaint to allege the Doe defendants’ true 10 names and capacities when they have learned them. 10. Plaintiffs believe and therefore allege that each defendant, including SAN FRANCISCO 12 Does 1 through 50, at all relevant times acted in concert with, and in conspiracy ATTORNEYS AT LAW F ENWICK & W EST LLP 11 13 with, every one of the other defendants. 14 11. At all relevant times defendants, and each of them, were owners, co- 15 owners, agents, representatives, partners, and/or alter egos of their co-defendants, or 16 otherwise acting on behalf of every other defendant and acted within the course and 17 scope of their authorities as owners, co-owners, agents, representatives, partners, 18 and/or alter egos of their co-defendants, with the full knowledge, permission and 19 consent of every other defendant, each co-defendant having ratified the acts of the 20 other co-defendants. 21 12. Plaintiffs intend every reference to defendants or to any of them as a 22 reference to all defendants, and to each of them named and unnamed, including all 23 fictitiously named defendants, unless it specifically qualifies the reference. 24 25 JURISDICTION AND VENUE 13. This Court has jurisdiction pursuant to 28 U.S.C. § 1332 because the 26 amount in controversy exceeds $75,000, exclusive of interest and costs, and 27 diversity exists among the parties. 28 14. COMPLAINT Venue is proper in this Court pursuant to 28 U.S.C. § 1391(b)(1) and 3 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 5 of 17 Page ID #:5 1 (b)(2) because Defendants reside in this judicial district and the events or omissions 2 giving rise to the claims occurred in this judicial district. 3 4 FACTS COMMON TO ALL CAUSES OF ACTION 15. On April 28, 2011, Defendant Perfect 10 filed suit against Plaintiffs 5 Giganews and Livewire in the Related Case, alleging unmeritorious claims for 6 direct and indirect copyright infringement of Perfect 10’s copyrighted adult content 7 images, trademark infringement, trademark dilution, unfair competition, and 8 publicity rights violations. Exhibit 1 [Dkt. Entry 1 of the Related Case] and Exhibit 9 2 [Dkt. Entry 105 of the Related Case] are the original complaint and the first 10 amended complaint in the Related Case. Defendant Zada controlled, directed, and SAN FRANCISCO 12 ATTORNEYS AT LAW F ENWICK & W EST LLP 11 personally participated in litigation of the Related Case. 16. After considerable motion practice in the Related Case, involving a 13 docket with over several hundred entries, after which only certain copyright claims 14 for direct and indirect infringement remained based upon earlier dismissal orders 15 [Dkt. Entries 97 and 129 of the Related Case], the parties filed a total of seven 16 competing motions for partial summary judgment. On November 14, 2014, in the 17 Related Case, Judge Birotte issued two orders which granted partial summary 18 judgment in favor of Giganews and Livewire on Perfect 10’s claims for direct 19 copyright infringement, and partial summary judgment in favor of Giganews on 20 Perfect 10’s claims for indirect copyright infringement, the legal effect of which, 21 together with the earlier dismissal rulings, resolved all of Perfect 10’s claims in 22 favor of Plaintiffs. Exhibit 3 [Dkt. Entry 619 of the Related Case] and Exhibit 4 23 [Dkt. Entry 620 of the Related Case] are copies of those two orders by Judge 24 Birotte on November 14, 2014. 25 17. On November 26, 2014, the District Court entered final judgment in 26 favor of Giganews and Livewire on all of Perfect 10’s claims in the Related Case. 27 Exhibit 5 [Dkt. Entry 628 of the Related Case] is a copy of the final judgment. Key 28 language stated: COMPLAINT 4 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 6 of 17 Page ID #:6 1 The Court GRANTS FINAL JUDGMENT in favor of [Giganews and 2 Livewire] and against Perfect 10 as to all the claims by [Perfect 10] in the 3 case . . . . The Court DECLARES that [Giganews and Livewire] did not 4 infringe any of Perfect 10’s copyrights, either directly or indirectly, and thus 5 are not liable for direct infringement, contributory infringement or vicarious 6 infringement. The Court also DECLARES that [Giganews and Livewire] 7 bear no liability to Perfect 10 for any asserted causes of action . . . . 8 Giganews and Livewire may seek reimbursement of their reasonable 9 attorneys’ fees to the extent allowed by 15 U.S.C. § 1117, 17 U.S.C. § 505, 10 Cal. Civ. Code § 3344, or any other applicable law. SAN FRANCISCO 12 ATTORNEYS AT LAW F ENWICK & W EST LLP 11 Exhibit 5 at 1:25-2:15 (emphasis in original). 18. On March 24, 2015, the court in the Related Case (Honorable Andre 13 Birotte Jr., presiding), granted Plaintiffs’ Motion for Attorneys’ Fees and Expenses, 14 awarding Plaintiffs reasonable fees in the amount of $5,213,117.06, and costs in the 15 amount of $424,235.47, for the total amount of $5,637,352.53. Exhibit 6 [Dkt. 16 Entry 686 of the Related Case] is a copy of that order. In it, the Court observed: 17 Perfect 10’s undisputed conduct in this action has been inconsistent with a 18 party interested in protecting its copyrights. All of the evidence before the 19 Court demonstrates that Perfect 10 is in the business of litigation, not 20 protecting its copyrights or “stimulat[ing] artistic creativity for the general 21 public good.” 22 Exhibit 6 at 17:15-20 (emphasis added) (internal citations omitted). 23 Rather than bringing suit for the purpose of protecting its copyrights and 24 stimulating artistic creativity, the evidence reveals that Zada’s interest in the 25 copyrights held by his “tax write-off” is solely in litigation. In deposition, 26 for example, Perfect 10’s President and CEO Norma Zada testified that, to 27 date, it has filed between 20 and 30 copyright infringement lawsuits. In the 28 life of the company, more than half of Perfect 10’s revenues have been COMPLAINT 5 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 7 of 17 Page ID #:7 1 generated by litigation. However, all of those revenues were generated by 2 settlements and defaults – Perfect 10 has never obtained a judgment in a 3 contested proceeding in any of its roughly two dozen copyright lawsuits. 4 Similarly, litigation expenses make up the largest share of Perfect 10’s 5 expenses, which are on par with, if not greater than, Perfect 10’s personnel 6 expenses. In his capacity as President and CEO, Zada spends “eight hours a 7 day,” 365 days a year on litigation, “working on various court cases that 8 [Perfect 10] ha[s] going on.” Indeed, Zada admitted that, in the past, Perfect 9 10 has expressly purchased copyrights from other copyright holders “because 10 [Perfect 10] thought they would be helpful in [its] litigation efforts.” SAN FRANCISCO 12 ATTORNEYS AT LAW F ENWICK & W EST LLP 11 Id. at 18:23-19:1 (emphasis added) (internal citations omitted). 19. Plaintiffs Giganews and Livewire believe and therefore allege that, 13 beginning in early 2014, Zada caused Perfect 10 to begin unlawfully transferring 14 Perfect 10’s corporate assets to Zada in anticipation of unfavorable court rulings 15 and a possible judgment against Perfect 10 for attorneys’ fees. According to 16 Perfect 10’s General Ledger as of December 31, 2014 (a copy of the relevant pages 17 of which is Exhibit 7), Perfect 10, through Zada, made the following transfers of 18 Perfect 10’s cash to Zada on the following dates, including a transfer to Zada of 19 approximately $850,000 on November 20, 2014, approximately six (6) days after 20 this Court granted summary judgment in favor of Plaintiffs on November 14, 2014: 21 DATE OF TRANSFER TO ZADA 22 AMOUNT OF TRANSFER 01/03/14 $200,000 03/10/14 $50,000 24 03/19/14 $100,000 25 05/14/14 $100,000 26 05/28/14 $100,000 27 07/08/14 $150,000 28 09/04/14 $100,000 23 COMPLAINT 6 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 8 of 17 Page ID #:8 1 2 3 4 20. 10/07/14 $100,000 11/20/14 Total: $850,000 $1,750,000 Further substantiating the fraudulent nature of these transfers, during 5 the Judgment Debtor’s Examination of Zada on January 28, 2016 (relevant 6 transcript excerpts of which are Exhibit 8) Zada confessed that he caused the 7 transfer of $850,000 from Perfect 10 to his personal bank account due to the 8 “summary judgment orders”: SAN FRANCISCO ATTORNEYS AT LAW F ENWICK & W EST LLP 9 Q: There’s a withdrawal on November 20, 2014. It’s an online 10 banking transfer CHK 0277 in the amount of $850,000. Do you see 11 that? 12 A: Yes. 13 Q: Is that to your personal account? 14 A: Yes. 15 Q: Do you share that account with anyone else? 16 A: No. 17 Q: That’s a personal account you have at Bank of America? 18 A: Correct. 19 Q: At the same branch as your Perfect 10 account? 20 A: I think it’s the same branch. 21 Q: What did that – what prompted that transfer of $850,000? 22 A: Well, I had been – you know, we had gotten a significant 23 amount of settlements in 2014. We had a settlement of $1.1 million 24 in, I believe, June. I was entitled to that money. And after the 25 summary judgment orders were issued, I did not see any point in 26 keeping more cash than we needed in the account. 27 Exhibit 8 at 150:15-151:12 (emphasis added). 28 21. On or around March 2015 (within a few weeks of the court’s order COMPLAINT 7 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 9 of 17 Page ID #:9 1 awarding attorneys’ fees and costs), Zada fraudulently transferred substantially all 2 of Perfect 10’s physical assets (i.e., non-cash assets) to himself in a sham 3 transaction for inadequate consideration. Id. at 87:22-93:11; 109:25-110:4. These 4 assets include, but are not limited to, Perfect 10’s car, furniture, magazines, 5 computer servers, external hard drives, and t-shirts. Id. at 88:13-19. Zada admitted 6 that he caused Perfect 10 to make these transfers because “it would have been 7 totally disruptive to have those [assets] seized” in satisfaction of the judgment. Id. 8 at 110:5-111:5. 9 22. Perfect 10 continues to operate much as it has in the past. It still offers 10 for sale the magazines and t-shirts that Zada purchased; when a customer expresses SAN FRANCISCO 12 Id. at 88:2-8; 103:9-19. Zada has sent new notices of claimed infringement under ATTORNEYS AT LAW F ENWICK & W EST LLP 11 interest, Zada simply “gives” those assets back to Perfect 10 to complete the sale. 13 the Digital Millennium Copyright Act (“DMCA”) on behalf of Perfect 10 to online 14 service providers, and it has continued to pursue Perfect 10’s copyright litigation 15 against AOL in Germany. Id. at 55:18-21; 65:25-66:5. 16 23. On July 16, 2015, Perfect 10’s office manager and paralegal, Melanie 17 Poblete, wrote in an email to Bruce Hersh, the CPA for Perfect 10, that “Perfect 10 18 has a $5M judgment against it now and so we probably need to reallocate how we 19 pay things. When are you free to talk to [Zada] and me?” Exhibit 9 is a copy of that 20 email. 21 24. During Poblete’s deposition on December 6, 2016, (relevant transcript 22 excerpts of which are Exhibit 10), she admitted that Zada began personally paying 23 Perfect 10’s corporate expenses, ostensibly with the unlawfully transferred funds, in 24 order to avoid attachment: 25 Q: 26 utilities being paid by Perfect 10 now that there’s a judgment against 27 Perfect 10. Should the utilities be paid by Norman Zada? What do 28 you recall about Mr. Zada’s concerns about the judgment lien against COMPLAINT And it appears that you say, “Norm is very concerned about the 8 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 10 of 17 Page ID #:10 1 Perfect 10? 2 A: 3 shouldn’t be paying anything because there was a judgment against it 4 and money that came in should be given over . . . Dr. Zada pays it 5 because he doesn’t want there to be any kind of, you know, 6 speculation that Perfect 10 is somehow, you know, paying something 7 it shouldn’t when there’s a judgment against it. What I remember is that Norm was worried that Perfect 10 8 Exhibit 10, at 121:21-122:13 (emphasis added). SAN FRANCISCO ATTORNEYS AT LAW F ENWICK & W EST LLP 9 Q: You said in [your July 16, 2015, email sent to Bruce Hersh], 10 ‘Perfect 10 has a $5 million judgment against it now and we probably 11 need to reallocate how we pay things.’ Is that your belief at the time? 12 A: 13 wanted to make sure that Perfect 10 wasn’t paying bills with money 14 that should go towards the judgment. I think this has to do with what I said earlier, that Norm Zada 15 Id., at 136:12-19 (emphasis added). 16 Furthermore, Poblete admitted that “nothing” had changed at Perfect 25. 17 10’s office after Perfect 10 transferred substantially all of its physical assets to 18 Zada. Id. at 30:4-31:10. The office furniture and computers remain in the same 19 room as when Perfect 10 owned them, and they are still used for Perfect 10’s 20 business. Id. 21 FIRST CAUSE OF ACTION 22 Violation of Uniform Fraudulent Transfer Act for Actual Fraudulent 23 Transfer Pursuant to California Civil Code § 3439(a)(1) 24 (AGAINST ALL DEFENDANTS AND EACH OF THEM) 25 26. Plaintiffs incorporate by reference and re-allege here all the preceding 26 paragraphs. 27 27. 28 A transfer made or obligation incurred by a debtor is voidable as to a COMPLAINT California Civil Code § 3439.04(a) states as follows: 9 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 11 of 17 Page ID #:11 1 creditor, whether the creditor’s claim arose before or after the transfer was 2 made or the obligation was incurred, if the debtor made the transfer or 3 incurred the obligation as follows: 4 (1) With actual intent to hinder, delay, or defraud any creditor of the 5 debtor. 6 28. Beginning in early 2014, Perfect 10, through Zada and in conspiracy 7 with him, began unlawfully transferring Perfect 10’s corporate assets to Zada as it 8 became reasonably apparent that Perfect 10 would be ultimately be held liable for 9 Plaintiffs’ attorneys’ fees and costs in defeating Perfect 10’s unmeritorious suit. In 10 total, between January 3, 2014, and November 20, 2014, Perfect 10, through Zada SAN FRANCISCO 12 Perfect 10’s cash in order to avoid satisfaction of the judgment and attachment of ATTORNEYS AT LAW F ENWICK & W EST LLP 11 and in conspiracy with him, transferred to Zada approximately $1,750,000 of 13 such assets. On or around March 2015, Perfect 10 also transferred substantially all 14 of its physical assets to Zada, including but not limited to Perfect 10’s car, 15 furniture, magazines, computer servers, external hard drives, and t-shirts, in order to 16 avoid satisfaction of the judgment and attachment of such assets, without a 17 reasonably equivalent value in exchange for such transfers. 18 29. Zada continues to operate Perfect 10’s business while disregarding 19 satisfaction of the judgment due to Plaintiffs of $5,637,352.53 (representing an 20 award of Plaintiffs’ attorneys’ fees and costs incurred in its successful defense of 21 Perfect 10’s infringement claims on the merits), plus accruing interest on that 22 amount, as he personally pays Perfect 10’s corporate expenses through his bank 23 accounts using the unlawfully transferred monies in order avoid satisfaction of the 24 judgment and attachment of such assets. Furthermore, Perfect 10 continues to use 25 and physically possess the unlawfully transferred physical assets that Zada now 26 owns, including but not limited to computers and office furniture. 27 30. The transfers from Perfect 10 to Zada bear the “badges of fraud” that 28 California Civil Code 3439.04(b)) recognizes, indicating that particular transfers of COMPLAINT 10 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 12 of 17 Page ID #:12 1 assets were with the intent to “hinder, delay or defraud” creditors. They included 2 but are not limited to the facts that: (1) these transfers from Perfect 10 to Zada were 3 to an insider; (2) at its offices Perfect 10 continues to retain physical possession 4 and control of the unlawfully transferred assets; (3) the transfers happened when it 5 became reasonably apparent that a large judgment (representing an award of 6 attorneys’ fees and costs) would be entered against Perfect 10 as a result of its 7 unmeritorious and unsuccessful suit for copyright infringement; (4) the cash 8 transfers were for substantially all of Perfect 10’s liquid funds; (5) the non-cash 9 transfers were substantially all of Perfect 10’s physical assets; (6) Perfect 10 10 received no reasonably equivalent consideration in exchange for these transfers; SAN FRANCISCO 12 then personally paying Perfect 10’s corporate expenses with the unlawfully ATTORNEYS AT LAW F ENWICK & W EST LLP 11 and (7) Perfect 10 was practically insolvent as a result of these transfers (with Zada 13 transferred funds in order to avoid attachment) 14 31. Defendants’ unlawful conduct was a substantial factor in harming 15 Plaintiffs. As a consequence, Plaintiffs are entitled to a judgment against 16 Defendants, and each of them, in the sum of the unlawfully transferred amounts of 17 at least $1,750,000, or in an amount to be proven at trial, together with interest on 18 that amount at the legal rate of 10% per annum from and after March 24, 2015. 19 Plaintiffs are also entitled to avoidance of the transfers to Zada to the extent they 20 necessary to satisfy Plaintiffs’ claims, or any other relief the circumstances may 21 require against Defendants, including but not limited to an accounting of all profits 22 earned by Defendants from or in connection with the unlawfully transferred assets. 23 32. Oppression, fraud, and malice characterized Defendants’ behavior with 24 respect to the transfers and other conduct at issue. Defendants’ unlawful transfer of 25 Perfect 10’s corporate assets to Zada in order to evade attachment and satisfaction 26 of the judgment makes it clear that Defendants intended to harm Plaintiffs and 27 subject Plaintiffs to a cruel and unjust hardship in conscious disregard of Plaintiffs’ 28 rights, justifying an award of punitive and exemplary damages against Defendants. COMPLAINT 11 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 13 of 17 Page ID #:13 1 33. To the extent there have been any fraudulent transfers of Perfect 10’s 2 corporate assets to Zada or any other person or entity, and any transfer of 3 unlawfully retained assets by Zada to any other person or entity, which took place 4 on or after January 1, 2016 (the effective date of enactment of the Uniform 5 Voidable Transfer Act), which unlawful transfers may become apparent during 6 discovery in this action, Plaintiffs will seek leave of this Court to amend this 8 SECOND CAUSE OF ACTION 9 Violation of Uniform Fraudulent Transfer Act for Constructive Fraudulent 10 Transfer Pursuant to California Civil Code § 3439(a)(2)(B) 11 (AGAINST ALL DEFENDANTS AND EACH OF THEM) SAN FRANCISCO 12 ATTORNEYS AT LAW F ENWICK & W EST LLP 7 Complaint to add additional causes of action under that Act. 34. Plaintiffs incorporate by reference and re-allege here all preceding 13 paragraphs. 14 35. 15 A transfer made or obligation incurred by a debtor is voidable as to a 16 creditor, whether the creditor’s claim arose before or after the transfer was 17 made or the obligation was incurred, if the debtor made the transfer or 18 incurred the obligation as follows: California Civil Code § 3439.04(a) states as follows: 19 (2) With receiving a reasonably equivalent value in exchange for the 20 transfer or obligation, and the debtor . . . . (B) Intended to incur, or 21 believed or reasonably should have believed that the debtor would 22 incur, debts beyond the debtor’s ability to pay as they became due. 23 36. Beginning in early 2014, Perfect 10, through Zada and in conspiracy 24 with him, began unlawfully transferring Perfect 10’s corporate assets to Zada. 25 Perfect 10, through Zada, reasonably believed that Perfect 10 would be ultimately 26 liable for Plaintiffs’ attorneys’ fees and costs incurred in defeating Perfect 10’s 27 unmeritorious suit. In total, between January 3, 2014, and November 20, 2014, 28 Perfect 10 transferred to Zada approximately $1,750,000 of Perfect 10’s cash, COMPLAINT 12 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 14 of 17 Page ID #:14 1 without a reasonably equivalent value in exchange for the transfers, in order to 2 avoid satisfaction of the judgment and attachment of those assets. On or around 3 March 2015, Perfect 10 also transferred substantially all of its physical assets to 4 Zada, including but not limited to Perfect 10’s car, furniture, magazines, computer 5 servers, external hard drives, and t-shirts, without a reasonably equivalent value in 6 exchange for the transfers in order to avoid satisfaction of the judgment and 7 attachment of those assets. 8 37. Perfect 10, through Zada, continues to operate its business while 9 disregarding satisfaction of the judgment due to Plaintiffs of $5,637,352.53 plus 10 accruing interest on that amount, as Zada personally pays Perfect 10’s corporate SAN FRANCISCO 12 order to avoid satisfaction of the judgment and attachment of assets. Furthermore, ATTORNEYS AT LAW F ENWICK & W EST LLP 11 expenses through his bank accounts using the unlawfully transferred monies in 13 Perfect 10 continues to use and physically possess the unlawfully transferred 14 physical assets that Zada now owns, including but not limited to computers and 15 office furniture. 16 38. Defendants’ conduct was a substantial factor in harming Plaintiffs. As 17 a consequence, Plaintiffs are entitled to a judgment against Defendants, and each of 18 them, in the sum of the unlawfully transferred amounts of at least $1,750,000, or in 19 an amount to be proven at trial, together with interest on that sum at the legal rate of 20 10% per annum from and after March 24, 2015. Plaintiffs are also entitled to 21 avoidance of the transfers to Zada to the extent necessary to satisfy Plaintiffs’ 22 claims, or any other relief the circumstances may require against Defendants, 23 including but not limited to an accounting of all profits earned by Defendants from 24 or in connection with the unlawfully transferred assets. 25 39. Oppression, fraud, and malice characterized Defendants’ behavior with 26 respect to the transfers and other conduct at issue. Defendants’ unlawful transfer of 27 Perfect 10’s corporate assets to Zada in order evade attachment and satisfaction of 28 the judgment makes it clear that Defendants intended to harm Plaintiffs and subject COMPLAINT 13 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 15 of 17 Page ID #:15 1 Plaintiffs to a cruel and unjust hardship in conscious disregard of Plaintiffs’ rights, 2 justifying an award of punitive and exemplary damages against Defendants. 3 40. To the extent there have been any fraudulent transfers of Perfect 10’s 4 corporate assets to Zada or any other person or entity, and any transfer of 5 unlawfully retained assets by Zada to any other person or entity, which took place 6 on or after January 1, 2016, the effective date of enactment of the Uniform 7 Voidable Transfer Act, which unlawful transfers may be revealed during discovery 8 in this action, Plaintiffs will seek leave of this Court to amend this Complaint to add 9 additional causes of action under that Act. SAN FRANCISCO ATTORNEYS AT LAW F ENWICK & W EST LLP 10 PRAYER FOR RELIEF 11 WHEREFORE, Plaintiffs pray for relief on each cause of action as follows: 12 1. That the Court enjoin Perfect 10 from further transferring or disposing 13 of any assets of any type, including but not limited to cash, personal property, real 14 property and/or intangible property to Zada, or his employees, representatives, 15 attorneys and agents, and/or anyone acting on his behalf or in conspiracy with him, 16 and enjoining and restraining Zada from transferring, conveying, assigning, 17 encumbering, hypothecating or otherwise disposing of any of the unlawfully 18 transferred assets to any other person or entity. 19 2. That the Court declare that all defendants, and each of them, including 20 but not limited to Defendants Perfect 10 and Zada; their employees, representatives, 21 attorneys and agents; and/or anyone acting on their behalf hold the unlawfully 22 transferred assets in trust for Plaintiffs. 23 3. That the Court grant Plaintiffs against all defendants jointly and 24 severally a judgment for the value of the assets Perfect 10 unlawfully transferred, 25 including but not limited to unlawfully transferred assets not yet discovered, equal 26 to the value at the time of the transfer, subject to adjustment as the equities may 27 require, or in an amount to be proved at trial, but in no event less than the sum of 28 $1,750,000, plus interest accruing on that sum at the legal rate of 10% per annum COMPLAINT 14 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 16 of 17 Page ID #:16 1 from and after March 24, 2015. 2 4. That the Court order all defendants, and each of them, to account to 3 Plaintiffs for all profits and proceeds from or in connection with the unlawfully 4 transferred assets, including unlawfully transferred assets not yet discovered. 5 5. That the Court award Plaintiffs punitive and exemplary damages from 6 all defendants jointly and severally in the amount of $20,000,000, or in such other 7 amount that the Court determines to bear a reasonable relationship to Plaintiffs’ 8 actual damages and does not otherwise violate the requirements of due process. 9 6. That the Court award Plaintiffs their attorneys’ fees against all 10 defendants jointly and severally pursuant to, and including but not limited to, SAN FRANCISCO 12 ATTORNEYS AT LAW F ENWICK & W EST LLP 11 California Code of Civil Procedure § 685.040. 7. That the Court award Plaintiffs costs of suit against all defendants 13 jointly and severally. 14 8. That the Court grant any other relief that it considers just and proper. 15 \\\ 16 \\\ 17 \\\ 18 \\\ 19 \\\ 20 \\\ 21 \\\ 22 \\\ 23 \\\ 24 \\\ 25 \\\ 26 \\\ 27 \\\ 28 COMPLAINT 15 CASE NO. 7:17-cv-05075 Case 2:17-cv-05075-SVW-E Document 1 Filed 07/10/17 Page 17 of 17 Page ID #:17 1 2 DEMAND FOR JURY TRIAL Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiffs 3 demand a jury trial. 4 5 DATED: July 10, 2017 6 Respectfully submitted, 7 FENWICK & WEST LLP 8 9 By: 10 Andrew P. Bridges Andrew P. Bridges SAN FRANCISCO 12 ATTORNEYS AT LAW F ENWICK & W EST LLP 11 RONALD P. SLATES P.C. 13 14 By: ___Ronald P. Slates________ Ronald P. Slates 15 16 17 Attorneys for Plaintiffs/Judgment Creditors, GIGANEWS, INC., and LIVEWIRE SERVICES, INC. 18 19 20 21 22 23 24 25 26 27 28 COMPLAINT 16 CASE NO. 7:17-cv-05075