Opinion
NO. CIV. S-09-996 LKK/DAD.
August 12, 2009
ORDER
This case involves a breakdown of an alleged joint venture between defendant/counterclaimant American Sign Language Service Corp. and plaintiff/counter-defendant Purple Commendations, Inc., and entities related to these two parties. Plaintiffs/counter-defendants have moved to dismiss in part and strike in part ASLS's counterclaim. For the reasons stated below, the motion to dismiss is denied in part, and the motion to strike is denied in full.
I. BACKGROUND
A. The Parties
The plaintiffs in this case are Purple Communications, Inc. and Hands on Video Relay Services, Inc. Purple Communications, Inc. ("Purple") provides on-site communication services, including interpreting, and video relay services. Co-plaintiff Hands on Video Relay Services Inc. ("HOVRS") is a wholly-owned subsidiary of Purple. HOVRS uses the internet to provide an audio/video link to video interpreters, who interpret between hearing-impaired and hearing persons.
Defendants are American Sign Language Service Corp., Gracias VRS, LLC, and Angela Roth. American Sign Language Service Corp. ("ASLS") is a company that provides sign language interpreting services to the deaf and hard-of-hearing. Gracias VRS, LLC is a subsidiary of ASLS. Gracias utilizes video relay service to provide communication services to deaf and hard-of-hearing Spanish-speaking individuals. "Video relay service" refers to a set of telecommunication services that facilitate phone conversations between hearing-impaired and hearing people through the use of a video camera and a remote interpreter. Angela Roth is President and CEO of ASLS.
Defendant ASLS has filed a counterclaim against plaintiffs Purple and HOVRS. Defendants Gracias and Angela Roth have not joined in this counterclaim. Thus, the three parties relevant to this order are ASLS, Purple and HOVRS. The court endeavors to use "plaintiffs" when referring to both plaintiff/counter-defendants Purple and HOVRS. However, ASLS's counterclaim complicates this issue by using "Purple" to refer to Purple and HOVRS collectively, Countercl. 1:4-5. In some instances, it is not clear whether ASLS intended to refer to Purple individually or to the two plaintiffs together, and in these instances, the court has necessarily repeated ASLS's use of the term "Purple."
B. The Joint Venture
In November 2005, ASLS and HOVRS entered into a joint venture to provide video relay services for the Spanish speaking market. HOVRS equipped the video relay centers and provided technical support, while ASLS provided interpreters, staff and training. The first call center was located in Kissimmee, Florida and a second call center, established in September 2006, was in San Jaun, Puerto Rico. The details of the joint venture were further specified by a service agreement adopted by the parties in the fall of 2006. Under this service agreement, ASLS continued to be responsible for staffing, training, and personnel management at both centers, as well as facility management at the Florida center. Purple managed facilities at the Pueto Rico center. Countercl. ¶ 22.
All parties allege that there was great potential for expansion in the provision of these interpretive services. In essence, each side's claims in this matter center on the contention that the other side wrongfully attempted to capture this potential for itself, rather than sharing it through the joint venture. Notwithstanding this broad similarity, on the present motion to dismiss, only ASLS's counterclaim and the allegations therein are at issue. ASLS alleges that from the end of 2006 through the beginning of 2007, call volume grew exponentially and consistently exceeded Purple's expectations and projections for the centers. Id. at 23. Perceiving an opportunity to grow, ASLS sought to expand the joint venture with additional call centers.Id. at 24. ASLS's particular claims center on Purple's alleged responses to these efforts.
C. Basis for ASLS's Claims
ASLS alleges that Purple expressed interest in expansion, but that notwithstanding this expression, Purple actually intended to minimize the joint relationship and instead secure the additional revenue stream alone. Id. at 25-26. ASLS further alleges that Purple did not take any action toward expansion of the joint venture.
The first of these allegations pertains to December 2007. At that time, HOVRS merged with Purple and Purple allegedly threatened to shutdown the call centers if ASLS did not agree to enter into a new contract. Id. at 28. ASLS alleges that although it entered into the January 2008 agreement under duress, the agreement did include key provisions that were vital to ASLS. Under the 2008 agreement, Purple agreed to compensate ASLS based upon the number of video relay service minutes processed by ASLS. Countercl. Ex. A ¶¶ 5-6. ASLS requested and Purple agreed that "it shall not prioritize calls or otherwise discriminate against ASLS so as to avoid routing such calls to ASLS or as to limit VRS Minutes made available to ASLS." Countercl. Ex. A ¶ 3. ASLS claims that the call routing and antidiscrimination guarantee were material terms to the agreement. Countercl. ¶ 31.
The agreement also provided that Purple would support the expansion of the joint operated call centers. The agreement provided that Purple "[u]pon ASLS demonstrating and justifying to HOVRS' reasonable satisfaction a rational business need for [video relay service] communications center expansion beyond the existing two cites . . . to meet existing and anticipated customer demand, HOVRS will build additional call centers for operation by ASLS . . ." Countercl. Ex. A ¶ 1. The agreement further provided that either party may terminate the agreement at anytime if the other party was in material breach and failed to correct the breach after thirty days written notice. Countercl. Ex. A ¶¶ 15, 25.
ASLS contends that even after the agreement, and ASLS's continued performance exceeding expectations, Purple would not open another call center. Countercl. ¶¶ 35, 38-39. ASLS alleges that the situation continued to deteriorate as Purple locked ASLS out of the computer system thereby preventing ASLS from accessing information about call routing and activity, while Purple continued to divert calls away from ASLS. Opp'n to Mot. to Dismiss 6:11-15. ASLS further alleges that Purple began revising the compensable minutes reports sent to ASLS, upon which ASLS had to rely because of a lock out from the computer system. Countercl. ¶¶ 46-53.
In July 2008 ASLS was informed by HORVS that Purple would not honor the expansion provision of the agreement. An email from HOVRS was sent to ASLS in response to the question of why HOVRS was building other Spanish speaking call centers without ASLS involvement despite the 2008 agreement. Countercl. Ex. B ¶ 3. HOVRS responded by saying "We have decided to minimize our risk by allowing ourselves to have a higher percentage of the Spanish platform versus being 90% dependant on one partner." Id. In the fall of 2008, after ASLS declined the acquisition offer by Purple, Purple purchased Sign Language Associates, a company that provides similar services to ASLS. Countercl. ¶ 49. Purple allegedly expanded Sign Language Associates and set up call centers within ASLS's Florida territory. Id.
ASLS alleges that Purple was in material breach of the agreement and of Purple's fiduciary duties to its joint venture partner. Opp'n to Mot. to Dismiss 6:24-25. On September 17, 2008, ASLS sent a Notice of Breach to Purple and on September 30 informed Purple that ASLS would not be renewing its agreement with Purple for 2009.
ASLS contends that as it grew concerned about Purple's commitment to the joint venture, ASLS begin preparing to open its own call centers and established a separate business, Gracias, which opened September 23rd, 2008.
II. STANDARDS
A. Standard for A Motion to Dismiss under Fed.R.Civ.P. 12(b)(6)
In order to survive a motion to dismiss for failure to state a claim, plaintiffs must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 569 (2007). While a complaint need not plead "detailed factual allegations," the factual allegations it does include "must be enough to raise a right to relief above the speculative level." Id. at 555.
The Supreme Court recently held that Federal Rule of Civil Procedure 8(a)(2) requires a "showing" that the plaintiff is entitled to relief, "rather than a blanket assertion" of entitlement to relief. Id. at 555 n. 3. Though such assertions may provide a defendant with the requisite "fair notice" of the nature of a plaintiff's claim, the Court opined that only factual allegations can clarify the "grounds" on which that claim rests.Id. "The pleading must contain something more . . . than . . . a statement of facts that merely creates a suspicion [of] a legally cognizable right of action." Id. at 555, quoting 5 Wright Miller, Federal Practice and Procedure, § 1216, pp. 235-36 (3d ed. 2004).
The holding in Twombly explicitly abrogates the well established holding in Conley v. Gibson that, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." 355 U.S. 41, 45-46 (1957); Twombly, 550 U.S. at 560.
On a motion to dismiss, the allegations of the complaint must be accepted as true. See Cruz v. Beto, 405 U.S. 319, 322 (1972). The court is bound to give the plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. See Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n. 6 (1963). In general, the complaint is construed favorably to the pleader. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982). Nevertheless, the court does not accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual allegations. W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).
B. Standard for Motion to Strike Pursuant to Federal Rule of Civil Procedure 12(f)
Rule 12(f) authorizes the court to order stricken from any pleading "any redundant, immaterial, impertinent, or scandalous matter." A party may bring on a motion to strike within 20 days after the filing of the pleading under attack. The court, however, may make appropriate orders to strike under the rule at any time on its own initiative. Thus, the court may consider and grant an untimely motion to strike where it seems proper to do so. See 5A Wright and Miller, Federal Practice and Procedure: Civil 2d § 1380.
Motions to strike are generally viewed with disfavor, and will usually be denied unless the allegations in the pleading have no possible relation to the controversy, and may cause prejudice to one of the parties. See 5A C. Wright A. Miller, Federal Practice and Procedure: Civil 2d § 1380; See also Hanna v. Lane, 610 F. Supp. 32, 34 (N.D. Ill. 1985). If the court is in doubt as to whether the challenged matter may raise an issue of fact or law, the motion to strike should be denied, leaving an assessment of the sufficiency of the allegations for adjudication on the merits. See 5A Wright Miller, supra, at 1380.
III. ANALYSIS
The counterclaim enumerates eleven claims. Plaintiffs move to dismiss all but the second and third claims, for breach of contract and breach of the implied covenant of good faith and fair dealing, respectively, and the eleventh claim, for trespass. Although the court analyzes the various claims individually, plaintiffs repeat several arguments. Plaintiffs argue that the tort claims for breach of fiduciary duty, for usurpation of business opportunities, and the three misrepresentation claims all impermissibly seek to recast contract claims as tort claims. Plaintiffs also argue that the misrepresentation claims fail to satisfy the pleading requirements imposed by Fed.R.Civ.P. 9(b). Plaintiffs argue that the usurpation of business opportunity, unjust enrichment, and accounting claims are duplicative of or superfluous in light of the other claims. Finally, plaintiffs argue that ASLS's unfair competition claim fails with the above claims.
Plaintiffs' memorandum in support of their motion explicitly states that it does not challenge the contract and good faith claims. Plaintiffs' memorandum does not refer to the trespass claim.
A. Fiduciary Duty Claims
ASLS's first counterclaim is for breach of fiduciary duty. ASLS's fourth counterclaim, for "usurpation of joint venture opportunity" is also explicitly premised on the fiduciary duties plaintiffs owed to ASLS on account of the joint venture. Countercl. ¶ 77. Purple argues that both of these claims improperly attempt to recast contract claims as tort claims. Mot. to Dismiss 7:22-23. Alternatively, Purple argues that the fourth claim should be dismissed as duplicative of the first claim.
1. Relationship between Fiduciary Duty and Contract Counterclaims
Purple argues that ASLS's tort claims for breach of fiduciary duty and usurpation of a joint venture opportunity should be dismissed as impermissibly attempting to recast contract claims as torts. ASLS alleges that Purple owed a fiduciary duty to ASLS arising out of the parties' relationship as joint venturers. Plaintiffs concede that a joint venture relationship exists. Partners in a joint venture owe each other fiduciary duties. See, e.g., City of Hope Nat'l Med. Ctr. v. Genentech, Inc., 43 Cal. 4th 375, 386 (2008), Galardi v. State Bar, 43 Cal. 3d 683, 691 (1987). ASLS alleges that Purple breached this duty by
(1) failing to pay invoices in full and on time as required, (2) failing to pay marketing fees, (3) improperly routing calls away from ASLS, (4) denying ASLS access to the information necessary to confirm [video relay service] minutes and ASLS performance, such as queue monitoring and certified NECA reports, (5) failing to support expansion of jointly operated call centers, and (6) expanding solely for the benefit of Purple/HOVR, to the exclusion of ASLS.
Countercl. ¶ 60. These same six factual allegations, repeated verbatim, are the conduct alleged to have constituted a breach of contract. Countercl. ¶ 69.
"A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations." Aas v. Super. Ct., 24 Cal. 4th 627, 643 (2000). Thus, a breach of ordinary contractual duties, including the implied covenant of good faith and fair dealing, is not ordinarily actionable in tort. On the other hand, a tort claim between contracting parties will lie if the claim seeks to enforce a duty other than ordinary contractual duties. See, e.g., Erlich v. Menezes, 21 Cal. 4th 543, 551-52 (1999), Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 515 (1994).
This court recently applied this principle to grant a motion to dismiss a negligence claim in Intervest Mortg. Inv. Co. v. Skidmore, No. Civ. S-08-1543, 2008 WL 5113780, 2008 U.S. Dist. LEXIS 101979 (E.D. Cal. Nov. 24, 2008). In Intervest, a borrower asserted a tort claim against the lending bank, alleging that the bank had negligently administered the loan.Id. at *1-*2. This claim was premised on a purported tort duty to act as a "reasonable bank." Id. at *3. This court ruled that no such duty existed separate from the duties set forth in the contract, and that the negligence claim was therefore improper. Id. at *4. See also Patriot Sci. Corp. v. Korodi, 504 F. Supp. 2d 952, 964 (S.D. Cal. 2007).
Unlike the purported duty to act like a reasonable bank, a fiduciary duty is distinct from the ordinary contractual duties. In some cases, the fiduciary duty may arise from circumstances separate from the contract. For example, one California Court of Appeal recently determined that "the fiduciary duty that exists because of the relationship between parties in a joint venture does not arise from the existence of a contract," but from the joint venture relationship itself. Pellegrini v. Weiss, 165 Cal. App. 4th 515, 531 (2008). ASLS alleges that this case is similar, in that the joint venture relationship, and thus the fiduciary duty, predate all contracts between the parties. Countercl. ¶ 20. However, even when the terms of a contract cause the parties to enter into a joint venture relationship, this will in turn support a claim for breach of fiduciary duty. Galardi, 43 Cal. 3d at 692-93 (in the context of a joint venture created by contract, holding that the joint venturers owed each other fiduciary duties, and that conduct could breach the fiduciary duty even though it did not breach express terms of the contract); see also City of Hope, 43 Cal. 4th at 386 (evaluating whether a particular contract gave rise to a fiduciary relationship). More generally, although a tort claim must be premised on a duty other than an ordinary contractual duty, such a separate and special duty may owe its existence to a contract. "Stated another way, '[c]onduct which merely is a breach of contract is not a tort, but the contract may establish a relationship demanding the exercise of proper care and acts and omissions in performance may give rise to tort liability.'" Freeman Mills v. Belcher Oil Co., 11 Cal. 4th 85, 107 (1995) (Mosk, J., concurring and dissenting) (quotingGroseth Intern., Inc. v. Tenneco, Inc., 440 N.W. 2d 276, 279 (S.D. 1981)).
A separate example of such a "special relationship" is the relationship between an insurer and an insured. Although the relationship between an insurer and an insured is created by a contractual insurance policy, California courts have held that this relationship differs from the ordinary relationship between contracting parties, and this special relationship underlies California tort law of insurance bad faith. See, e.g., Jonathan Neil Assoc. v. Jones, 33 Cal. 4th 917, 937 (2004).
California courts have therefore held that when a fiduciary duty exists, this duty is sufficiently separate from other contract duties to support a tort claim for breach of fiduciary duty. In cases where California courts have rejected claims for breach of fiduciary duty between contracting parties, they have done so on the ground that no fiduciary duty existed, rather than on the ground that the fiduciary duty was indistinct from or subsumed by the contract. City of Hope, 43 Cal. 4th at 386-392, Wolf v. Superior Court, 107 Cal. App. 4th 25, 29-36 (2003). Notably, both City of Hope and Wolf, in explaining that no fiduciary duty existed, noted that the parties in those cases were not engaged in a joint venture.City of Hope, 43 Cal. 4th at 386, 389; Wolf, 107 Cal. App. 4th at 32. Where a joint venture has existed, California courts have allowed claims for breach of fiduciary duty to proceed. The partial dissent in Wolf stated that because "evidence may develop establishing [that the parties] were involved in a joint venture," the claim for breach of fiduciary duty should not have been dismissed, notwithstanding the existence of the written contract. Wolf, 107 Cal. App. 4th at 39 (Johnson, J., concurring and dissenting). The position taken by the Wolf dissent was adopted by the majority in Krantz v. BT Visual Images, 89 Cal. App. 4th 164, 178 (2001). In Krantz, the plaintiff had brought claims for, inter alia, breach of contract and breach of a fiduciary duty arising out of a joint venture. The trial court granted summary judgment to defendant on the breach of fiduciary duty claim, on the ground that there was no joint venture, and thus no fiduciary duty. The appellate court reversed, holding that there was a material question as to whether a joint venture existed, and thus that the breach of fiduciary duty claim, together with the contract claims, could proceed to trial. Id. at 178.
The above cases establish that a fiduciary duty has a life separate from contractual obligations, regardless of whether the duty was created by contract or otherwise. California courts have further held that fiduciary duties are ordinarily not otherwise limited by the existence of a contract. In Stephenson v. Drever, 16 Cal. 4th 1167, 1170 (1997), the Court considered a "buy-sell agreement," which was a contract that gave "a closely held corporation the right and obligation to repurchase the shares of a minority shareholder-employee on termination of his employment." Under California law, a majority shareholder owes certain fiduciary obligations to minority shareholders. Id. at 1178. Nonetheless, defendants in Stephenson sought dismissal of plaintiff's claim for breach of fiduciary duty on the ground that the contract obliging plaintiff to sell these shares implicitly relieved defendants of their fiduciary obligations. Id. at 1179. The Court rejected this argument, concluding that although the contract and fiduciary duty concerned similar subjects — i.e., the shares — the contract could not implicitly abrogate the fiduciary duty. Id. Here, the contract does not explicitly disclaim the fiduciary duty arising out of the joint venture. Countercl. Ex. A.
Finally, the fact that the particular alleged conduct underlying the fiduciary duty and contract counterclaims is the same is not a barrier to the fiduciary duty counterclaim. The California Supreme Court has held that "the same wrongful act may constitute both a breach of contract and an invasion of an interest protected by the law of torts." Erlich, 21 Cal. 4th at 551 (quoting North American Chemical Co. v. Superior Court, 59 Cal. App. 4th 764, 774 (1997)); see also Freeman Mills, 11 Cal. 4th at 107 (Mosk, J., concurring and dissenting). Although this court is not aware of a California opinion specifically permitting a party to simultaneously proceed with claims for breach of fiduciary duty and breach of contract premised on the same conduct, the California cases considering the relationship between contract and tort claims have focused exclusively on the duties enforced by those claims, rather than on the allegations underlying them. Erlich's recognition of the fact that the same conduct may breach both contract and tort duties, coupled with the California court's repeated statements that the fiduciary duty owed to a joint venturer is separate from a contract duty, compels the conclusion that claims for breach of fiduciary duty and breach of contract may rest on the same allegations. This is not to say that whenever one party owes a fiduciary duty to the other, the breach of a contract between the parties also breaches the fiduciary obligation. It may be that the scope of the fiduciary duty is not co-extensive with the scope of this particular contract, and that some of the allegations here, if proven, would not violate the fiduciary duty. This is a separate argument, one which plaintiffs have not advanced, and whose applicability to the present facts is not before the court.
In their reply brief, plaintiffs quote Atlantis Info. Tech. v. CA, Inc., 485 F. Supp. 2d 224, 232 (E.D.N.Y. 2007), which applied New York law to conclude, as an alternative ground for dismissal, that a breach of fiduciary duty claim should be dismissed where the claim was "based upon the same allegations contained in the first count of the amended complaint to recover damages for breach of contract." Atlantis relied on two other cases which had held that under New York law, "A cause of action for breach of fiduciary duty which is merely duplicative of a breach of contract claim cannot stand." Cal Distrib. v. Cadbury Schweppes Ams. Bevs., Inc., 2007 U.S. Dist. LEXIS 854 (S.D.N.Y. Jan. 5, 2007) (quoting William Kaufman Organization, Ltd. v. Graham James LLP, 269 A.D.2d 171, 703 N.Y.S.2d 439, 442 (1st Dept. 2000)).
It is not clear to the court that separate or different damages are claimed for the breach of contract and the violation of the duties arising out of the joint venture. That question, however, is not before the court in the instant motion.
2. The Relationship between ASLS's First Counterclaim, for Breach of Fiduciary Duty, and Fourth Counterclaim, for Usurpation of Business Opportunity
Plaintiffs alternatively argue that ASLS's fourth counterclaim is duplicative of the first counterclaim. Whereas the previous argument challenged ASLS's ability to recover tort damages under a fiduciary duty theory, this argument concedes that usurpation of a business opportunity may constitute a breach of fiduciary duty leading to tort damages. Plaintiffs merely argue that this conduct cannot support two separately enumerated claims premised on a breach of fiduciary duty. Thus, this argument is one of pleading form.
ASLS concedes that the fourth counterclaim, like the first counterclaim, is a type of claim for breach of fiduciary duty.See 9 Witkin, Summary of California Law, § 13, at 588 (10 ed.) (citing MacIsaac v. Pozzo, 81 Cal. App. 2d 278, 285-286 (1947)). The specific allegations underlying the fourth counterclaim are that plaintiffs expanded on their own, rather than through the joint venture, thereby usurping business opportunities from which the joint venture could have profited, and that plaintiffs diverted potential revenue away from ASLS by rerouting call to other parties. Countercl. ¶¶ 77, 78. The first counterclaim similarly alleges that plaintiffs breached their fiduciary duty to ASLS by "(3) improperly routing calls away from ASLS, . . . and (6) expanding solely for the benefit of Purple/HOVR, to the exclusion of ASLS." Countercl. ¶ 60. Thus, the first and fourth counterclaims both allege that the same conduct constituted a breach of the same duty. These claims are therefore duplicative, and the fourth counterclaim is dismissed.
B. Misrepresentation and Fraud Claims
ASLS asserts three claims for fraud, namely promissary fraud, intentional misrepresentation and negligent misrepresentation. As with the fiduciary duty claims, plaintiffs argue that these claims impermissibly recast contract obligations as torts. Plaintiffs also argue that these claims have not been adequately pled, in that ASLS has not alleged all the elements of such claims as required by California law, or made allegations with the specificity required by Fed.R.Civ.P. 9(b).
1. Relation between Misrepresentation and Contract Claims
Plaintiffs assert that ASLS's misrepresentation claims are based entirely upon the alleged violations of the contract, and are thus further impermissible attempts to recast a breach of contract as a tort. Mot. to Dismiss 8:10-13. As noted above, when one party to a contract asserts a tort claim against another contracting party, this claim must be based on a duty separate from the contract. The duties enforced by misrepresentation claims are such separate duties. See, e.g., Lazar v. Super. Ct., 12 Cal. 4th 631, 638, 648-49 (1996) (permitting a claim for promissory fraud claim to proceed alongside a claim for breach of the contractual promise), McClain v. Octagon Plaza, LLC, 159 Cal. App. 4th 784, 794 (2008).
2. Whether The Misrepresentation Claims are Adequately Pled
Purple also argues that ASLS has failed to allege the elements of a cause of action for intentional or negligent misrepresentation under California law, and that ASLS's allegations lack the specificity required by Fed.R.Civ.P. 9(b).
The elements for intentional misrepresentation under California law are: (1) misrepresentation (a false representation, concealment or nondisclosure), (2) knowledge of falsity, (3) intent to defraud (to induce reliance), (4) justifiable reliance, and (5) resulting damage. Agosta v. Astor, 120 Cal. App. 4th 596, 603 (2004). Promissory fraud is actionable as a type of intentional misrepresentation under the California Civil Code section 1710(4), which provides that "A promise, made without any intention of performing it" may constitute an actionable misrepresentation. Negligent misrepresentation shares all but the second element of intentional misrepresentation: whereas intentional misrepresentation requires actual knowledge of a representations falsity, for negligent misrepresentation, only an absence of reasonable grounds for believing a statement to be true is required. Fox v. Pollack, 181 Cal. App. 3d 954, 962 (1986).
In addition to these requirements, Federal Rule of Civil Procedure 9(b) provides that "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." A pleading meets the particularity requirement of Rule 9(b) "if it identifies the circumstances constituting fraud so that a defendant can prepare an adequate answer from the allegations."Moore v. Kayport Package Express, 885 F.2d 531, 540 (9th Cir. 1989).
Plaintiffs raise four arguments for dismissal of the three fraud counterclaims. Plaintiffs argue that the claims have not been alleged with sufficient particularity, that the promissory fraud claim fails to adequately allege intent not to perform, that all claims fail to allege reliance, and that the allegations underlying the claims are impermissibly brought on information and belief.
a. Circumstances Constituting Fraud
ASLS's counterclaims sufficiently specify the representations that are alleged to have constituted fraud, and the time, manner, and speaker for these representations.
As to the promissory fraud claim, the allegedly fraudulent promises are the promise to expand the joint venture, Countercl. ¶¶ 29, 40, 34, and the promise not to preferentially route calls to service providers other than ASLS, ¶¶ 40, 31. The promises were made in the agreement attached to the counterclaim. ASLS has sufficiently identified the circumstances of this promise.
The intentional and negligent misrepresentation claims also concern in part plaintiffs' alleged refusal to expand and activities in routing calls away from ASLS. However, whereas the promissory fraud claim alleges that Purple made promises that Purple did not at the time intend to perform, the intentional and negligent misrepresentation claims allege that once Purple broke those promises, by routing calls around ASLS and by secretly expanding apart from the joint venture, Purple misrepresented the fact that it was doing so. Countercl. ¶¶ 90, 99. The intentional and negligent misrepresentation claims are also based on an allegation with no analogue in the promissory fraud claim: that Purple misrepresented the accuracy of reports concerning the number video relay service minutes completed by ASLS video interpreters and associated performance data. Countercl. ¶¶ 90, 99.
ASLS has provided the dates, media (emails and monthly reports on the number of video relay service minutes), individuals involved, and content of the alleged misrepresentations underlying these latter two claims. Countercl. ¶¶ 90, 99. The counterclaim further specifies that these representations were directed towards ASLS. Id. ¶¶ 34, 51, 90. Nonetheless, plaintiffs argue that the counterclaim is inadequate because it does not identify whether the individuals making the alleged misrepresentations were acting on behalf of Purple or HOVRS. ASLS's counterclaim uses "Purple" to refer to Hands on Video Relay Service and Purple Communications collectively. Pursuant to this practice, ASLS's allegations supporting the misrepresentation claims refer to "Purple".
The Ninth Circuit has held that "[i]n the context of a fraud suit involving multiple defendants, a plaintiff must, at a minimum, 'identif[y] the role of [each] defendant[] in the alleged fraudulent scheme.'" Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007) (quoting Moore, 885 F.2d at 541). In Swartz, the court dismissed a claim that was "shot through with general allegations that the 'defendants' engaged in fraudulent conduct but attribute[d] specific misconduct only to [two of the multiple defendants]." Id. The Swartz plaintiff's allegations merely stated that the defendants "act[ed] as agents [of the other defendants]" and that the defendants "were active participants in the conspiracy without any stated factual basis." Id. (internal quotations omitted).
Here, although ASLS has not stated which plaintiff/counter-defendant the named individuals acted on behalf of, ASLS has nonetheless exceeded the "minimum" established bySwartz. By naming the specific employees and executives who made the challenged representations, the allegations are "'specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong.'" United States v. Smithkline Beecham Clinical Labs., 245 F.3d 1048, 1051-52 (9th Cir. 2001) (quoting Neubronner v. Milken, 6 F.3d 666, 671 (9th Cir. 1993)). One way to provide this specificity is to attribute representations to individual parties, but the same (in fact, a greater) level of specificity or particularity is provided by naming the individual persons involved.
b. Intent Not to Perform
Plaintiffs also argue that ASLS's claim for promissory fraud has failed to allege "the circumstances constituting fraud" by inadequately alleging an intent not to perform on the promises. In a claim for promissory fraud, two forms of intent are relevant: the intent not to perform the promise at the time that it is made, and the intent that the other party rely on the promise.
In Richardson v. Reliance Nat. Indem. Co., No. 99-2952, 2000 WL 284211, 2000 U.S. Dist. LEXIS 2838 (N.D. Cal. March 9, 2000), Judge Breyer held that to plead a claim for promissory fraud, the pleader must allege facts supporting the inference that at the time the promise was made, the promisor lacked intent to perform. 2000 U.S. Dist LEXIS 2838 at *12-*14. Richardson based this conclusion on an interpretation of the Ninth Circuit's en banc opinion in In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994). This particular holding from Richardson has been adopted by at least five other decisions of district courts within this circuit. Premiere Innovations, Inc. v. IWAS Indus., LLC, No. 07-cv-1083, 2007 WL 2873442, 2007 U.S. Dist. LEXIS 72755 (S.D. Cal. Sept. 28, 2007), Mat-Van, Inc. v. Sheldon Good Co. Auctions, No. 07-cv-912, 2007 U.S. Dist. LEXIS 54876, 2007 WL 2206946 (S.D. Cal. July 27, 2007), Celador Int'l, Ltd. v. Walt Disney Co., 347 F. Supp. 2d 846, 856 (C.D. Cal. 2004) Hsu v. Oz Optics Ltd., 211 F.R.D. 615, 620 (N.D. Cal. 2002), Smith v. Allstate Ins. Co., 160 F. Supp. 2d 1150, 1152-54 (S.D. Cal. 2001); see also Icasiano v. Allstate Ins. Co., 103 F. Supp. 2d 1187, 1191-92 (N.D. Cal. 2000) (adopting this holding without citation to any authority); but see Watts v. Allstate Indem. Co., No. S-08-1877, 2009 U.S. Dist. LEXIS 26618 (E.D. Cal. Mar. 31, 2009) (declining to adopt this rule).
This court declines to adopt the Richardson interpretation ofGlenFed. GlenFed, a securities fraud case decided before the enactment of the Private Securities Litigation Reform Act, held that a complaint must "set forth an explanation as to why the statement or omission complained of was false and misleading." 42 F.3d at 1548. Plaintiffs had alleged that defendant falsely portrayed itself "as able to withstand the recession and systemic problems in the thrift industry when in fact, GlenFed was just another problem-plagued thrift riddled by systemic defects." Id. at 1544-45 (internal quotation omitted). As this court recently explained,
The en banc panel [in GlenFed] reached two major holdings. First, in a claim for fraud, plaintiffs are not required to allege facts giving rise to an inference of scienter. Id. at 1546. Second, pursuant to the Rule 9 obligation to allege the circumstances "constituting" fraud, the complaint must do more than merely identify the challenged representations; it must also explain "what is false or misleading about a statement, and why it is false." Id. at 1548.Watts, 2009 U.S. Dist. LEXIS 26618 at *23. In GlenFed, the challenged representations concerned predictions made on the basis of uncertain information. The Ninth Circuit held that because "Securities fraud cases often involve some more or less catastrophic event occurring between the time the complained-of statement was made and the time a more sobering truth is revealed (precipitating a drop in stock price)," the plaintiff was required to allege "an explanation as to why the disputed statement was untrue or misleading when made." 42 F.3d at 1548 (emphasis in original).
Richardson held that in a claim for promissory fraud, intent not to perform is one of the "circumstances constituting fraud." Rule 9(b). That is, whereas in GlenFed the alleged fraud concerned predictions regarding objective facts, in a claim of promissory fraud the allegation is that a defendant lied about the defendant's intent. Promissory fraud therefore involves a conflict between Rule 9(b)'s provision that the "circumstances constituting fraud" be pleaded with particularity and the rule's provision that "intent . . . may be alleged generally."Richardson held that, in the face of this conflict, the first provision was controlling, such that "the 'circumstances indicating falseness [must] be set forth.'"Richardson, 2000 U.S. Dist. LEXIS 2838 at *12 (quoting GlenFed, 42 F.3d at 1547-48). According to Richardson, Rule 9(b)'s intent provision only applies once a plaintiff has alleged falsity, and thus only applies to intent to deceive, and not to intent not to perform. Id. at *14. The court stated that a contrary rule "would effectively eviscerate the effect of Rule 9(b) in every case of promissory fraud." Id.
Although this court agrees that, in a promissory fraud claim, the two provisions of Rule 9(b) come into some conflict, this court parts ways with Richardson to conclude that the latter provision of Rule 9(b) is controlling. As a matter of statutory interpretation, the latter provision appears to be the more specific. In GlenFed, the Ninth Circuit strongly rejected defendant's argument that Rule 9(b) required allegation of even some facts supporting an inference of scienter, concluding that "plaintiffs may aver scienter generally, just as the rule states — that is, simply by saying that scienter existed." 42 F.3d at 1547. The Ninth Circuit acknowledged that this rule might allow additional undesirable suits to proceed past the pleading stage, but held that "[w]e are not permitted to add new requirements to Rule 9(b) simply because we like the effects of doing so." Id. at 1546. Turning from scienter to intent, nothing indicates that Rule 9(b)'s reference to "intent" should be interpreted as applying to only certain forms of intent. Accordingly, this court concludes that intent, including intent not to perform the contract, may be alleged generally. See also Watts, 2009 U.S. Dist. LEXIS 26618.
In Watts, this court also observed that district courts were split on whether the GlenFed rule requiring "an explanation as to why the statement or omission complained of was false and misleading," 42 F.3d at 1548, was confined to securities fraud cases, and that the Ninth Circuit had not addressed this issue.See 2009 U.S. Dist. LEXIS 26618, *26-*27 (collecting cases).
In the alternative, even if a pleader must allege facts supporting an inference of intent not to perform, ASLS has alleged such facts. ASLS alleges that before the agreement was entered, Purple had already begun its practice of routing calls around ASLS call centers, and had also taken steps toward expanding separately, rather than through the joint venture. Countercl. ¶¶ 25, 26.
Plaintiffs also argue that even if ASLS has provided some allegations indicating that Purple did not intend to perform when the promises were made, these allegations may be disregarded because they are contradicted by ASLS's allegation that Purple "decided" to breach the contract once ASLS had already begun performance. Plaintiffs misinterpret ASLS's allegations. ASLS may consistently allege that Purple negotiated a contract containing provisions that Purple never expected to come into play, and that Purple, at the time of negotiation, intended to breach those provisions if they did, contrary to Purple's expectation, become relevant. This is what ASLS has alleged here, by alleging that Purple decided to repudiate the contract once it became clear that, contrary to Purple's expectations, the expansion provisions would be triggered.
c. Reliance
Plaintiffs' third argument regarding the fraud claims' compliance with Rule 9(b) is that ASLS has not sufficiently alleged reliance on the challenged representations. ASLS alleges that it relied upon the promises underlying the promissory fraud claim in choosing to enter the agreement, Countercl. ¶ 84, and that ASLS relied upon the later alleged misrepresentations in choosing to continue to perform under the agreement and not to seek independent expansion at an earlier time, Countercl. ¶ 91.
Plaintiffs argue that ASLS's allegations of reliance are rebutted by other allegations made by ASLS. As to the promissory fraud claim, ASLS alleges that Purple threatened to terminate the joint venture if ASLS did not enter into the current agreement. Countercl. ¶ 28. Plaintiffs contend that ASLS therefore entered the agreement for this reason, and not out of reliance on the belief that Purple would perform. Pls.' Mot. to Dismiss 12:7-12. This argument does not lie. ASLS has alleged that its willingness to enter the agreement to preserve the joint venture was predicated on ASLS's belief that the agreement would actually be obeyed. Engalla v. Permanente Med. Group, Inc., 15 Cal. 4th 951, 976-77 (1977) (a representation is relied upon when it is a "substantial factor" influencing a decision).
As to the remaining misrepresentation claims, plaintiffs argue that because ASLS made preparations to open its own centers separate from the joint venture, that ASLS did not rely on the misrepresentations in choosing to remain in the joint venture. This argument fails because ASLS alleges that these preparations were made substantially after the challenged representations, and because such preparations would not preclude a reasonable mind from concluding that ASLS relied upon the misrepresentations.Guido v. Koopman, 1 Cal. App. 4th 837, 843 (1991). At most, plaintiffs have raised a question of fact to be resolved at a later stage.
d. Allegations Made on Information and Belief
Lastly, plaintiffs argue that ASLS's allegations are impermissibly made on information and belief. This court has already concluded that ASLS's allegations specify "the who, what, when, where, and how" of the fraud claims. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). Plaintiffs argue that notwithstanding the fact that ASLS's allegations specify these details, the allegations fail because they are made on information and belief.
Ordinarily, by signing pleadings, the pleading party represents that "the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery." Fed.R.Civ.P. 11(b)(3). An allegation made "on information and belief" is one that is "based on secondhand information that the declarant believes to be true." Black's Law Dictionary, 8th Ed., 795 (2004). Many of the allegations underlying ASLS's three misrepresentation claims are explicitly made on information and belief. See, e.g., Countercl. ¶¶ 85, 90, 92, 99, 100.
In general, federal courts have permitted allegations in complaints to be made on information and belief. See Charles Wright and Arthur Miller, 5 Federal Practice and Procedure Civ. 3d, § 1224 (2009). This general acceptance may not extend to fraud claims, as several Ninth Circuit cases have stated that "[a]llegations of fraud based on information and belief usually do not satisfy the degree of particularity required under Rule 9(b)." Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987); see also Neubronner v. Milken, 6 F.3d 666, 276 (9th Cir. 1993) (following Wool), Moore v. Kayport Package Express, 885 F.2d 531, 540 (9th Cir. 1989) (same). However, these three cases held that allegations based on information and belief suffice when the facts are "within the opposing party's knowledge" and the pleader provides a "statement of the facts on which the belief is founded." Moore, 885 F.2d at 540 (quotingWool, 818 F.2d at 1439); see also Neubronner, 6 F.3d at 276.
Although Neubronner, Moore, and Wool stated the above rule and exception in general terms, it is not clear to this court whether this rule should be confined to securities fraud cases. All three cases, as well as the cases they relied upon, concerned securities fraud claims. The rule they adopted subsequently received statutory codification in the Private Securities Litigation Reform Act of 1995 ("PSLRA"), as part of the heightened pleading standard for security fraud actions. 15 U.S.C. § 78u-4(b)(1). No Ninth Circuit case, whether decided before or after the PSLRA, has applied this rule outside the securities fraud context, and the majority of other circuit opinions applying similar rules have concerned securities fraud. Various cases have discussed the uniqueness of securities fraud claims, see e.g. GlenFed, 42 F.3d at 1546, 1548-49, and this uniqueness is recognized by the imposition of heightened pleading standards in the PSLRA. Nonetheless, some other circuit courts have applied similar rules to fraud claims other than securities fraud, as have some district courts within this circuit. See First Capital Asset Mgmt. v. Satinwood, Inc., 385 F.3d 159, 180 (2d Cir. 2004), United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 226-231 (1st Cir. 2004), United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997); see also Natomas Gardens Inv. Group LLC v. Sinadinos, No. S-08-2308, 2009 U.S. Dist. LEXIS 39907 (E.D. Cal. May 12, 2009), Baas v. Dollar Tree Stores, Inc., 2007 U.S. Dist. LEXIS 65979 (N.D. Cal. Aug. 29, 2007), Steinke v. Merck Co., 432 F. Supp. 2d 1082, 1089 (D. Nev. 2006). See also Charles Wright and Arthur Miller, 5 Federal Practice and Procedure Civ. 3d, § 1298 (2009).
This court need not decide this issue here. Assuming that theNeubronner rule applies, ASLS's allegations fall within the recognized exception. The information concerning plaintiffs' intent, as well as the information concerning plaintiffs' separate expansion, routing of calls, and minute reports, is within plaintiffs' control. ASLS has also alleged the factual basis for its beliefs regarding the alleged representations. In the present case, taking ASLS's allegations as a whole, ASLS has plead factual allegations in support of its belief. ASLS alleges that Purple refused to open new call centers for ASLS despite the fact that ASLS exceeded the threshold under which Purple ordinarily sought expansions, Countercl. ¶ 39. ASLS attaches an exhibit in which Purple did not intend to expand with ASLS, which is one fact allegedly supporting ASLS's beliefs regarding Purple's earlier actions. Countercl. ¶ 48, Ex. B. See also Countercl. ¶ 46.
Accordingly, this argument fails, as do plaintiffs' previous arguments for dismissal of ASLS's misrepresentation counterclaims. Plaintiffs' motion to dismiss is denied with respect to these claims.
C. Unfair Competition
California's Unfair Competition Law, Cal. Bus. Prof. Code § 17200, proscribes "unlawful, unfair or fraudulent" business acts and practices. ASLS's eighth claim, under the UCL, alleges generally that the conduct underlying the first through seventh causes of action was unlawful, unfair and fraudulent.
Plaintiffs argue that if all of ASLS's tort claims are dismissed, the UCL claim should be dismissed as well, because actions in breach of contract are not "unlawful," and because ASLS has not alleged any other unlawful, unfair, or fraudulent conduct. Because this court does not dismiss ASLS's tort claims, the court rejects plaintiffs' contention that ASLS has not alleged unlawful conduct. Accordingly, the argument for dismissal of the UCL claim fails.
D. Unjust Enrichment
ASLS's ninth claim is for unjust enrichment. Under California law, unjust enrichment "is a general principle underlying various doctrines and remedies, including quasi-contract." Jogani v. Superior Ct., 165 Cal. App. 4th 901, 911 (2008). When one party receives a benefit from another or at the other's detriment, and it would be unjust for the former party to retain the benefit, unjust enrichment may cause the benefit to be conveyed to the aggrieved party. Peterson v. Cellco P'ship, 164 Cal. App. 4th 1583, 1593 (2008). See also Lauriedale Assocs., Ltd. v. Wilson, 7 Cal. App. 4th 1439, 1448 (1992); Ward v. Taggart, 51 Cal. 2d 736, 740 (1959) (describing unjust enrichment as a quasi-contractual theory).
Although California courts agree on the principles underlying unjust enrichment, they disagree as to whether unjust enrichment is itself a cause of action, or instead a remedy available under other causes of action. Numerous courts have held that "unjust enrichment is not a cause of action." Jogani, 165 Cal. App. 4th at 911 (citing Melchior v. New Line Productions, Inc., 106 Cal. App. 4th 779, 793 (2003)); see also, e.g., Lauriedale Associates, Ltd. v. Wilson, 7 Cal. App. 4th 1439, 1448 (1992). Meanwhile, other California courts have implied that unjust enrichment may stand alone, by describing the elements of a "claim" for unjust enrichment. See, e.g., Peterson v. Cellco Partnership, 164 Cal. App. 4th 1583, 1593 (2008), Lectrodryer v. Seoulbank, 77 Cal. App. 4th 723, 726 (2000). It appears that the former cases predominate, that they speak more directly to the issue, and that they state the better rule: the injustice must be shown through liability on some other claim, and "unjust enrichment" describes a theory of restitution that is a remedy available for the underlying claim.
Plaintiffs also argue that even when unjust enrichment is treated as a remedy, it is not available when a contract between the parties exist. The only apparent basis for this argument is plaintiffs argument that ASLS's tort counterclaims improperly restate contractual duties. This court has already rejected this argument. Insofar as tort counterclaims are permissible, the fact that a contract exists between the parties does not impose a per se prohibition on the remedies available under those counterclaims.
Accordingly, the court rejects plaintiffs' argument that ASLS is not entitled to recover from plaintiffs on an unjust enrichment theory, but the court grants plaintiffs' motion to dismiss ASLS's separately enumerated counterclaim for unjust enrichment.
Again, the court makes no judgment that different damages flow from the alleged violation of tort and contract causes of action.
E. Accounting
ASLS's tenth claim is for an accounting. A claim for accounting is an action in equity, where the plaintiff seeks an amount that cannot be determined without an accounting. St. James Church of Christ Holiness v. Super. Ct., 135 Cal. App. 2d 352, 359 (1955). In contrast, "[a]n action for accounting is not available where the plaintiff alleges the right to recover a sum certain or a sum that can be made certain by calculation." Teselle v. McLoughlin, 173 Cal. App. 4th 156, 179 (2009). "The purpose of the accounting is, in part, to discover what, if any, sums are owed to the plaintiff, and an accounting may be used as a discovery device."Id. at 180.
Here, ASLS has alleged that absent an accounting, it will be unable to determine the amount of loss it suffered, or the amount of benefit plaintiffs unfairly derived, from the actions underlying ASLS's various claims, principally the claim for usurpation of business opportunity. Plaintiffs have not shown that ASLS will be able to secure an adequate remedy absent an accounting. Accordingly, this claim is not dismissed.
F. Motion to Strike
Plaintiffs' motion to strike is predicated upon the success of their motion to dismiss. Plaintiffs argue that if all of ASLS's tort claims under which ASLS seeks punitive damages are dismissed, all references to punitive damages in the complaint should be striken. Because the court denies the motion to dismiss ASLS's claims seeking punitive damages, the motion to strike is denied.
IV. CONCLUSION
For the reasons stated above, plaintiffs' motion to strike, Doc. No. 12, is DENIED. Plaintiffs' motion to dismiss the counterclaim is GRANTED IN PART, as follows
1. The motion is GRANTED as to ASLS's fourth claim, for usurpation of business opportunity, and ninth claim, for unjust enrichment. However, the court reiterates that these claims are dismissed as duplicative, and not because they fail to state a theory of relief.
2. The motion is DENIED as to ASLS's first, fifth, sixth, seventh, eighth and tenth claims.
IT IS SO ORDERED.