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Old February 3rd 09, 11:43 AM posted to,
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Case No. 3:08-CV-05126-MHP





POLGAR, et al.,

DATE: February 23, 2009
TIME: 2:00 p.m.


CTRM: 15


and RANDALL HOUGH hereby oppose Defendant Susan Polgar’s Motion for Leave to
File Amended Answer and Assert Counterclaim (hereinafter, “Motion”).

Defendant Susan Polgar has engaged in serious misconduct. She conspired
with Defendant Gregory Alexander to break into Plaintiffs’ computer systems, she stole
Plaintiffs’ confidential communications, and she published these communications for the
world to see. Instead of explaining her misconduct, Polgar has responded with a
fantastical tale of a conspiracy to harass her, defame her, and oust her from the USCF.
But even if Polgar’s bizarre tale is taken as true, the Court should still deny Polgar’s
Motion for leave to amend because her proposed ultra vires defense and abuse of
process counter-claim fail on their face.

While leave to amend is typically granted freely, it should be denied when the
proposed amendments are futile. Such is the case here. First, while Polgar proposes
to add an ultra vires affirmative defense to her answer, such a defense is not viable.
Specifically, an act is ultra vires only when it exceeds the powers conferred on a
corporation by its charter, not merely when the act was performed in an unauthorized
manner. Even assuming Polgar’s allegations to be true, she cannot deny that the
USCF has the power to bring a civil lawsuit against her to address her misconduct.
Thus, the USCF’s prosecution of this lawsuit can never be ultra vires.

Second, Polgar fundamentally misinterprets the common law tort of abuse of
process, which only applies to the abuse of the Court’s legal machinery after the
initiation of the lawsuit. The cause of action does not apply to unfair treatment
generally. Polgar’s allegations of mistreatment, even if taken as true, refer to the
initiation of this lawsuit and acts prior to the initiation of this lawsuit. California law
makes clear that none of these actions can serve as the basis for an abuse of process

It’s important to take a step back from Polgar’s imaginary tale in considering her
proposed counter-claim. Polgar is accused of very serious misconduct. She has
responded by challenging the corporate authority of the lawsuit against her and
describing a plot to defame, harass, and oust her from as a USCF board member. The
Court should ignore these tactics and let this lawsuit proceed on its merits.

The Court should deny Polgar’s request for leave to amend because her
proposed amendments are not viable. While courts freely grant parties leave to amend
their pleadings, leave should be denied where the amendment would be futile, or where
the amended complaint would be subject to dismissal. In re Rubber Chemicals Antitrust
Litigation, 504 F. Supp. 2d 777, 786-77 (N.D. Cal. 2007); 321 Studios v. Metro Goldwyn
Mayer Studios, Inc., 307 F. Supp. 2d 1085, 1091-92 (N.D. Cal. 2004). Polgar’s
proposed ultra vires defense and abuse of process counter-claim are facially deficient
under the facts as pled or as could be pled. Thus, the proposed amendment is futile,
and leave should be denied.

A. Polgar Has Failed to Plead a Viable Ultra Vires Defense.
Polgar’s Motion must be denied because she has not—and cannot—allege a
viable basis for an ultra vires defense. “In its true sense the phrase ultra vires describes
action which is beyond the purpose or power of the corporation.” McDermott v. Bear
Film Co., 219 Cal. App. 2d 607, 611 (1963) (distinguishing “inflated” ultra vires doctrine,
which characterizes acts that are within the corporate power but performed in an
unauthorized manner”); see Sammis v. Stafford, 48 Cal. App. 4th 1935, 1942 (1996)
(“‘Ultra vires’” refers to an act which is beyond the powers conferred upon a corporation
by its charter or by the laws of the state of incorporation.”), quoting Marsili v. Pacific Gas
& Elec. Co., 51 Cal.App.3d 313, 322 (1975).

Significantly, actions that are within the power of a corporation but were
performed in an unauthorized manner or without authority are not ultra vires. See
McDermott, 219 Cal. App. 2d at 611. Thus, if a director or corporation acts within the
corporate powers, but without authority, the act is not ultra vires. Sammis, 48 Cal. App.
4th at 1942 (citing McDermott, 219 Cal. App. 2d at 610-11); see Lamere v. Superior
Court, 131 Cal. App. 4th 1059, 1066, n.4 (2005). With this principle in mind, when the
acts in question are not against law or public policy courts look upon the ultra vires
defense with disfavor, and its application is limited. Aitken v. Stewart 129 Cal. App. 38,
42 (1933); Davis v. Pacific Studios Corp. 84 Cal. App. 611, 616 (1927).1

Accordingly, in Sammis the court found that the ultra vires defense did not apply
where a corporation’s director created an improper board of one, elected himself as the
sole board member, signed an employment agreement with himself for a salary of up to
$150,000, and paid his wife both a salary and a pension. Sammis, 48 Cal. App. 4th at
1942. The court found that the director’s acts were not ultra vires. While the acts were
performed without authority and in an unauthorized manner, they were nevertheless
within the corporate powers. Id.

The situation here is the same as in Sammis. The USCF had the power to form
a legal subcommittee and bring a civil lawsuit against Polgar. Polgar does not—and
cannot—deny that the USCF has this power. Rather, Polgar argues that certain
directors acted in an unauthorized manner in initiating the lawsuit. But as addressed in
Sammis, such actions, though allegedly unauthorized, were not ultra vires because they
were within the fundamental powers of the USCF. The same is true for the denial of
Polgar’s request for indemnification: even if the request were denied improperly, such a
denial would not have exceeded the powers of the USCF. Because the USCF had the
power to bring a civil lawsuit against Polgar to address her misconduct, and the power
to deny Polgar’s request for indemnification, Polgar’s ultra vires defense will always fail
on its face.2

1 The same is true under Illinois law, the state of incorporation for the USCF. See
Robinson v. City of Geneseo, 89 Ill. App. 2d 415, 232 N.E.2d 464, 465 (1967);
Independent Order of Svithiod v. Ring Lodge No. 8, 261 Ill. App. 289, *6 (1931). It’s
also unclear whether Polgar is even permitted to raise an ultra vires defense under 805Ill. Comp. Stat. 105/103.15.

2 Even if Polgar’s ultra vires defense were viable as to the USCF, it is not viable as to
Randall Hough, who is an individual and brought this lawsuit on behalf of himself.
B. Polgar Has Failed to Plead a Viable Cause of Action for Abuse of Process.
While in her proposed counter-claim Polgar rants on about her supposed
mistreatment, she ignores the elements of an abuse of process claim. None of the
alleged misconduct described in the proposed counter-claim can serve as a basis for an
abuse of process claim under California law.3 Thus, Polgar’s proposed counter-claim is
facially deficient and should not be allowed.

The common law claim of abuse of process refers to the misuse of the machinery
of the legal system for an ulterior motive. Competitive Technologies v. Fujitsu Ltd., 286

F. Supp. 2d 1118, 1155 (N.D. Cal. 2003). To succeed in an action for abuse of process
under California law, a litigant must establish that the defendant: 1) contemplated an
ulterior motive in using the judicial process, and 2) committed a willful act in the use of
that process not proper in the regular conduct of the proceedings. Estate of Tucker ex
rel. Tucker v. Interscope Records, Inc., 515 F.3d 1019, 1037 (9th Cir. 2008). Thus,
abuse of process only applies to judicial proceedings; furthermore, the defendant must
have misused a court process for an improper purpose. See Rusheen v. Cohen, 37
Cal. 4th 1048, 1057 (2006) (“[T]he essence of the tort [is] . . . misuse of the power of the
court; it is an act done in the name of the court and under its authority for the purpose of
defense under Cal. Corp. C. §208, which expressly limits the ability to bring an actionchallenging the authority of a corporation to act. See 9 WITSUM Ch. XIII, §120 (statingthat, “In 1929, the [ultra vires] doctrine was abolished insofar as it affects relations withthird parties.” Such prohibition was later codified in Cal. Corp. C. §208).

3 Polgar appears to rely on the following allegations of misconduct as a basis for her
abuse of process claim:

“Counter-Defendants authorized Kronenberger to create a legal subcommittee”
(Proposed Counter-Claim (“PCC”) ¶24);

Counter-Defendants solicited personal information from Polgar and third party
Truong, and then disclosed that information with “the intent to defame, harass,
and force the resignation of Ms. Polgar and Mr. Truong” (PCC ¶¶25-26);

Plaintiffs filed this lawsuit in San Francisco Superior Court (PCC ¶27);

Plaintiffs sought and obtained a court order permitting early discovery from the
San Francisco Superior Court (PCC ¶30);

Plaintiffs served discovery pursuant to the valid discovery order entered by the
San Francisco Superior Court (PCC ¶30);

Counter-Defendants denied Polgar’s request for indemnification (PCC ¶31).

perpetrating an injustice.”); Flores v. Emerich & Fike, 416 F. Supp. 2d 885, 904 (E.D.
Cal. 2006); Competitive Technologies v. Fujitsu Ltd., 286 F. Supp. 2d 1118, 1155 (N.D.
Cal. 2003). Abuse of process does not apply to actions taken outside of judicial
proceedings that did not invoke court processes.

Moreover, the initiation of a lawsuit, even for an improper purpose, cannot
support a claim for abuse of process. Ramona Unified School Dist. v. Tsiknas, 135 Cal.
App. 4th 410, 520 (2005). Rather, abuse of process requires an abuse of the legal
machinery (i.e. an abuse of a legal process) after the initiation of a lawsuit. Simply filing
a lawsuit for an improper purpose cannot be an abuse of process. See Trear v. Sills, 69
Cal. App. 4th 1341, 1359 (1999); Bidna v. Rosen, 19 Cal.App.4th 27, 40 (1993) (abuse
of process claim concerns misuse of litigation tools once parties are in a lawsuit
regardless of whether there was probable cause to commence that lawsuit in the first
place); see also Heck v. Humphrey, 512 U.S. 477, 486, n.5 (1994) (abuse of process
refers to the extortionate perversion of a lawfully initiated court process).

None of the allegations in Polgar’s proposed counter-claim support a cause of
action for abuse of process. Most of the allegations refer to actions that occurred prior
to the filing of this lawsuit, and which involved no legal processes or court procedures

(i.e. the creation of a litigation committee, the request and disclosure of personal
information, the declination of indemnification (PCC ¶¶24-26, 31-32)). As discussed
above, such actions cannot serve as a basis for an abuse of process claim when they
did not involve court processes.
Polgar also appears to base her proposed abuse of process claim on Plaintiffs’
filing of this lawsuit. (PCC ¶27-29.) However, as discussed above, the filing of a
lawsuit, even for an improper purpose, cannot serve as the basis for an abuse of
process claim. Rather, Polgar must demonstrate that Plaintiffs misused court
procedures, after the initiation of the litigation, for extortionate purposes or illegitimate

Finally, Polgar bases her abuse of process claim on the fact that Plaintiffs

conducted discovery pursuant to a valid court order issued by the San Francisco
Superior Court before Polgar was even named as a defendant. (PCC ¶¶29-30.)
Despite Polgar’s fantastical explanations of Plaintiffs’ motives in obtaining this court
order, she has not—and cannot—plead a perversion of court processes for extortionate
or illegitimate purposes. As such, Polgar’s proposed counter-claim fails on its face.

It’s important to consider Polgar’s proposed counter-claim in context. In the face
of charges that Polgar hacked into the USCF’s computer systems, stole confidential
communications, and published these to the public, Polgar has responded with a
conspiracy theory describing an absurd vendetta against her. Polgar then uses this
straw man tale as a launching pad to attack the propriety of this lawsuit. The Court
should not allow Polgar to use such tactics to distract the Court from Polgar’s underlying

C. Polgar Has Failed to Identify the Parties to Her Proposed Counter-Claim.
Even if Polgar’s proposed abuse of process claim had any validity—and it does
not—her Motion is procedurally deficient where she has failed to explain who the
counter-defendants would be. Polgar has failed to include a caption to her proposed
counter-claim, thus giving Plaintiffs no information as to who the counter-defendants
would be. And Polgar’s Motion makes no reference to counter-defendants at all, or
whether Polgar even seeks to name additional parties. As a basic rule of pleading,
Polgar must identify the parties to her proposed counter-claim. She has failed to do so.
On this basis alone, Polgar’s Motion must be denied.

D. Polgar’s Apparent Counter-Defendants Are Incompatible with an Abuse of
Process Claim.
While the text of the proposed counter-claim seems to describe several
ostensible counter-defendants, this list is incompatible with an abuse of process claim.
As discussed above, an abuse of process claim concerns the misuse of litigation
procedures by parties to a lawsuit once the lawsuit has been initiated. Most of the
apparent counter-defendants in Polgar’s proposed counter-claim are not even parties to

the underlying lawsuit.4 The question then arises how the apparent counter-defendants
could have abused the judicial processes of this Court after the lawsuit was initiated?
Curiously, Polgar appears to have omitted the USCF as an apparent counter-defendant,
despite Polgar’s general attack on the USCF’s decision to bring this action.

Based on this sloppiness, it is apparent that Polgar’s counter-claim is not a bona
fide effort to defend her rights. Rather, it is a last minute screed, intended to burden
Plaintiffs and distract the Court from Polgar’s underlying misconduct. The Court should
disregard these efforts and deny Polgar leave to file her proposed counter-claim.

For the foregoing reasons, the Court should deny Polgar’s motion for leave to file
amended answer and assert counterclaim.

Respectfully Submitted,

DATED: February 2, 2009

/s/ Karl S. Kronenberger
Karl S. Kronenberger

Attorneys for Plaintiffs,

4 Polgar also references as an apparent counter-defendant Plaintiffs’ counsel in thisaction, Karl Kronenberger, in a transparent attempt to create a conflict of interest for
Plaintiffs’ counsel and disrupt Plaintiffs’ prosecution of this case.

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