Opinion
Case No. 17-cv-02187 NC
07-14-2017
CLINT STEVEN MILLER, Plaintiff, v. UNI-PIXEL INC., UNI-PIXEL DISPLAYS, INC., Defendants.
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS, AND GRANTING DEFENDANTS' MOTION TO STRIKE
Re: Dkt. Nos. 8, 12, 26
This case arises from defendants Uni-Pixel, Inc.'s (Uni-Pixel) and Uni-Pixel Displays, Inc.'s (Displays) alleged breaches of contract and misrepresentations to plaintiff Clint Steven Miller. Uni-Pixel and Displays separately bring two motions to dismiss plaintiff Miller's complaint, and a joint motion to strike an attachment to Miller's complaint. Because the Court finds (1) Miller is not a proper plaintiff; (2) Uni-Pixel is not a proper defendant; and (3) Miller fails to state a claim as to any of his claims, the Court GRANTS the motion to dismiss WITH LEAVE TO AMEND as to all claims except the negligence claim. The Court also GRANTS the motion to strike.
I. BACKGROUND
This case arises from alleged "breached written and verbal contracts" and various alleged misrepresentations made by Uni-Pixel and Displays. Dkt. No. 1 at 4. According to Miller, in February 2011, Ni Ne Trading Company, of which Miller is sole proprietor, and defendants "mutually agreed to a binding contract," "whereby Ni Ne would provide sales and business development services for compensation and Ni Ne would incur its own significant costs and expenses related to such service." Id. at 4-5. Miller was not a party to the contract between Displays and Ni Ne in his personal capacity. He signed the contract in his capacity as the CEO of Ni Ne. Dkt. No. 1-1 at 7. Defendants allegedly "did not terminate the contract per the terms of the contract," and the termination date was January 31, 2016. Id. at 5. The complaint does not specify how the defendants terminated the contract. In addition, Miller alleges that Uni-Pixel and Display moved customer accounts in Ni Ne's territory to another company. Id.
Miller brings this case for unpaid compensation and compensatory and punitive damages against Uni-Pixel and Displays. Id. at 4. According to Miller, the amount currently owed to Ni Ne is $ 750,506.35. Dkt. No. 1-1 at 1 (Exhibit A to the Complaint). Defendants move to dismiss Miller's complaint in separate motions to dismiss, and filed a joint motion to strike Exhibit C to the complaint. Dkt. Nos. 8, 12, 26. All parties consented to the jurisdiction of a magistrate judge under 28 U.S.C. § 636(c). Dkt. Nos. 4, 16.
II. LEGAL STANDARD
A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). On a motion to dismiss, all allegations of material fact are taken as true and construed in the light most favorable to the non-movant. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). The Court, however, need not accept as true "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). Although a complaint need not allege detailed factual allegations, it must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when it "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
If a court grants a motion to dismiss, leave to amend should be granted unless the pleading could not possibly be cured by the allegation of other facts. Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000).
III. DISCUSSION
Both defendants argue in their respective motions that Miller fails to state a claim for any of his claims for relief. However, the defendants also have arguments specific to them. The Court will first address the arguments that are specific to either defendant, and then address the issues that are common to both motions. The Court will also address the motion to strike.
A. Choice of Law
A choice of law issue exists in this case. "Federal courts sitting in diversity must apply the forum state's choice of law rules to determine the controlling substantive law." Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir. 2005) (internal citations and quotations marks omitted); Hoffman v. Citibank (S. Dakota), N.A., 546 F.3d 1078, 1082 (9th Cir. 2008). The forum state is California. "[U]nder California's choice of law analysis, a court must determine as a threshold matter 'whether the chosen state has a substantial relationship to the parties or their transaction, or . . . whether there is any other reasonable basis for the parties' choice of law.'" Hoffman, 546 F.3d at 1082 (quoting Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459 (1992)).
The substantial relationship test may be satisfied where one of the parties is a citizen of, or has its principal place of business in the state whose substantive law was chosen. Ruiz v. Affinity Logistics Corp., 667 F.3d 1318, 1323 (9th Cir. 2012). If either test is satisfied, the Court next considers "whether the 'chosen state's law is contrary to a fundamental policy of California.' If such a conflict with California law is found, 'the court must then determine whether California has a materially greater interest than the chosen state in the determination of the particular issue.'" Hoffman, 546 F.3d at 1082 (citing Nedlloyd, 3 Cal. 4th 459). Where the proponent of the choice of law clause shows a substantial relationship or a reasonable basis for the choice of law, "the parties' choice generally will be enforced unless the other side can establish both that the chosen law is contrary to a fundamental policy of California and that California has a materially greater interest in the determination of the particular issue." Washington Mut. Bank, FA v. Superior Court, 24 Cal. 4th 906, 917 (2001) (emphasis added). In addition, the Court must consider which state's substantive law applies to each claim under California law. JMP Sec. LLP v. Altair Nanotechnologies Inc., No. 11-cv-04498 SC, 2012 WL 892157, at *4 (N.D. Cal. Mar. 14, 2012).
The applicable substantive law under the contract is Texas state law, because the contract here contains a choice of law clause specifying Texas law as governing. Dkt. No. 1-1 at 7. Miller provides in the complaint that Uni-Pixel is a "citizen" of California and is a Delaware corporation, and that Displays "conducts business in California" and is a Texas corporation. Dkt. No. 1 at 2, 3. These states of incorporation are consistent with the Statements of Designation provided by defendants. Dkt. No. 11-1. Thus, Texas has a substantial relationship with defendant Displays. Ruiz, 667 F.3d at 1323. Further, because all of the claims in this case—negligence, fraud, breach of fiduciary duty, and breach of contract—arise from the February 2011 contract, Texas law applies to each claim. Nedlloyd, 3 Cal. 4th at 470 ("a valid choice-of-law clause, which provides that a specified body of law 'governs' the 'agreement' between the parties, encompasses all causes of action arising from or related to that agreement, regardless of how they are characterized"); JMP, 2012 WL 892157, at *6 (finding that the law of the chosen state in the contract applied not only to the breach of contract claim, but also claims for promissory estoppel, fraud, and negligent misrepresentation).
That clause states: "This Agreement will be governed by and construed in accordance with the laws of the State of Texas and the federal laws of the United States of America applicable in the State and each of the Parties agrees irrevocably to conform to the nonexclusive jurisdiction of the Courts of Texas."
Next, the Court considers whether Texas law is contrary to a fundamental California policy. Hoffman, 546 F.3d at 1082. There is no apparent conflict between California and Texas breach of contract law. Compare Velvet Snout, LLC v. Sharp, 441 S.W.3d 448, 451 (2014) with Buschman v. Anesthesia Bus. Consultants LLC, 42 F. Supp. 3d 1244, 1250 (N.D. Cal. 2014). Nor is there an apparent conflict between California and Texas law regarding breach of fiduciary duty. Compare Jones v. Blume, 196 S.W.3d 440, 447 (2006) with Tribeca Companies, LLC v. First Am. Title Ins. Co., 239 Cal. App. 4th 1088, 1114 (2015). As to fraud, there is also no apparent conflict between California and Texas law, though the Texas test for fraud includes the California test for both fraud and negligent misrepresentation. Compare In Interest of C.M.V., 479 S.W.3d 352, 361 (2015) with Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996) (fraud) and Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 158 Cal. App. 4th 226, 243 (2007) (negligent misrepresentation).
However, there is a conflict between California and Texas law as it concerns negligence arising from contracts. Under Texas law, if the alleged negligence arises from a contract, to bring a claim for negligence, the defendant must also have breached a duty imposed by law. Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (1991). Yet under California law, a plaintiff's contractual negligence claim may sound in contract or tort. Eads v. Marks, 39 Cal. 2d 807, 811 (1952). Here, the Court has found no evidence—and Miller has presented no argument—that this difference between Texas and California law violates a "fundamental policy" or that California has "a materially greater interest in the determination of the particular issue" in this case. Washington Mut., 24 Cal. 4th at 917. The Court will therefore apply Texas law.
B. Miller Lacks Standing to Bring Claims Regarding the 2011 Contract.
Under Texas law, "to establish standing to maintain a breach of contract action, a plaintiff must show either third-party beneficiary status or privity. For purposes of standing, a plaintiff can establish privity by proving the plaintiff was assigned a cause of action under a contract to which the defendant was a party." Sharifi v. Steen Auto., LLC, 370 S.W.3d 126, 141-42 (2012) (citing OAIC Commercial Assets, L.L.C. v. Stonegate Vill., L.P., 234 S.W.3d 726, 738 (2007)).
Miller lacks standing to sue on the contract because he was not a party to the contract between Ni Ne and Displays. There is also no indication that Miller, in his personal capacity, was a third-party beneficiary of the contract or otherwise in privity with defendants. Id. Miller signed the contract between Ni Ne and Displays in his capacity as CEO of the company. Dkt. No. 1-1 at 7. Furthermore, all of the claims in the complaint arise from contractual duties contained in the 2011 complaint. The negligence claim is for negligent performance of a duty under the contract; the fraud claim is for alleged misrepresentations made by defendants to Ni Ne so that Ni Ne would perform services under the contract; and the purported fiduciary duty owed to Ni Ne under the breach of fiduciary duty claim arose directly from the contract between Ni Ne and the defendants. Dkt. No. 1 at 8, 10. Thus, Miller cannot bring any of the claims arising from defendants' allegedly faulty performance of the 2011 contract, because if the allegations in the complaint are true, it was Ni Ne that was harmed, not Miller. Shipley v. Unifund CCR Partners, 331 S.W.3d 27, 28 (2010) ("Only the party whose primary legal right has been breached may seek redress for an injury").
The Court knows that the original plaintiff in this case was Ni Ne, but once the Court informed Miller that he could not represent the company personally, and needed to retain an attorney, Miller made himself the plaintiff. Dkt. Nos. 6, 15. The Court informs Miller that if he wants the Court to consider the merits of this complaint, he must substitute Ni Ne as the plaintiff and retain an attorney to represent Ni Ne.
C. Uni-Pixel Was Not a Party to the Contract, And Is Not a Proper Defendant.
Uni-Pixel argues Miller cannot state a claim for breach of contract against it because he cannot allege that a contract existed between the parties. Per Uni-Pixel, it is a separate entity from Displays. This is reflected in the Texas Statements of Designation by Foreign Corporation. Dkt. No. 11-1. In opposition, Miller seemingly concedes that Uni-Pixel was not party to the contract, but argues the Court should find that Displays is an alter ego of Uni-Pixel, meaning that they are the same entity. Dkt. No. 18 at 3.
Defendants request, and Miller does not oppose, that the Court take judicial notice of the 2016 Texas Statements of Designation by Foreign Corporation filed with the Texas Secretary of State for Uni-Pixel and Displays. Dkt. No. 11. The Court GRANTS defendants' request for judicial notice, observing that all of the documents requested to be noticed are undisputed and in the public record. Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001) (citing Fed. R. Evid. 201). However, the Court does not take judicial notice of the veracity of the facts contained in those documents, meaning that the Court does not, by virtue of those filings alone, accept that Uni-Pixel and Displays are separate entities, merely that they are reported to be separate entities. Farina Focaccia & Cucina Italiana, LLC v. 700 Valencia St. LLC, No. 15-cv-02286 JCS, 2015 WL 4932640, at *6 (N.D. Cal. Aug. 18, 2015) ("The Court does not take judicial notice of Plaintiff's actual legal status as of any particular date in either Delaware or California, which is a legal conclusion that may conflict with Plaintiff's reported status, not a fact that can be 'accurately and readily determined from sources whose accuracy cannot reasonably be questioned.'" (citing Fed. R. Evid. 201(b)) (italics in original)).
Under Texas law, "[a] subsidiary corporation will not be regarded as the alter ego of its parent corporation merely because of: (1) stock ownership; (2) a duplication of some or all of the directors or officers; or (3) an exercise of the control that stock ownership gives to stockholders." Capital Tech. Info. Servs., Inc. v. Arias & Arias Consultores, 270 S.W.3d 741, 749 (2008) (citations omitted). However, alter ego may be found "where management and operations are assimilated to the extent that the subsidiary is simply a name or conduit through which the parent conducts its business, the corporate fiction may be disregarded to prevent fraud or injustice." Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571, 573 (1975).
To support Miller's argument that alter ego exists, Miller states: "The source of most communications to the Plaintiff could not be segregated between Uni-Pixel, Inc. and Uni-Pixel Displays, Inc. The identical individuals and products were driving those written and verbal communications." Dkt. No. 18 at 3. As a matter of law, the vague and inadequately detailed allegations in the complaint are insufficient to make a showing that Uni-Pixel and Displays are one and the same. Thus, the Court finds Uni-Pixel is not a proper defendant in this case. However, because Miller could plausibly amend his complaint to impose liability on Uni-Pixel, he is granted leave to amend his allegations against Uni-Pixel.
D. The Merits of the Claims
1. Miller Has Not Stated a Claim For Negligence.
Both defendants move to dismiss Miller's negligence claim.
Under Texas law, the elements of negligence "are the existence of a legal duty, a breach of that duty, and damages proximately caused by the breach." IHS Cedars Treatment Ctr. of DeSoto, Texas, Inc. v. Mason, 143 S.W.3d 794, 798 (2004) (citation omitted). "The two elements of proximate cause are cause in fact (or substantial factor) and foreseeability." Id. Yet if the alleged negligence arises from a contract, in order to bring a claim for negligence, the defendant must also have breached a duty imposed by law. Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (1991).
DeLanney discusses that where a defendant breaches a contract and, for example, also burns down the plaintiff's home, the defendant is liable in contract and tort. Defendant had a common-law duty not to burn the house. "When the only loss or damage is to the subject matter of the contract, the plaintiff's action is ordinarily on the contract." DeLanney, 809 S.W.2d at 494.
Here, the Court need not get into the elements of the claim because Miller's complaint demonstrates that he cannot state a claim for negligence. This is because in his own words, Miller provided that the legal duty from which the alleged negligence stemmed is a clause in the contract, which defendants allegedly failed to fulfill. Dkt. No. 1 at 8 ("Defendants had a duty, as defined in the contract, to provide information and training regarding the ongoing status of their capabilities and products."). There are no allegations in the complaint that defendants breached some other duty imposed by law. DeLanney, 809 S.W.2d at 494. Further, Miller is not a party to the contract. Neither defendant has a contractual duty to a party who was not a party to the contract. This claim is DISMISSED WITH PREJUDICE.
2. Miller Has Not Stated a Claim For Fraud.
Both defendants move to dismiss Miller's fraud claim.
Under Texas law, "[t]he elements of fraud are: (1) a material misrepresentation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made the statement recklessly without any knowledge of the truth; (4) the speaker made the representation with the intent that the other party should act on it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury." In Interest of C.M.V., 479 S.W.3d at 361. A plaintiff bringing a claim for fraud must plead "with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). The pleading must "be specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong." Sanford v. Memberworks, Inc., 625 F.3d 550, 558 (9th Cir. 2010). To avoid dismissal, "the complaint must describe the time, place, and specific content of the false representations and identify the parties to the misrepresentations." NavCom Tech., Inc. v. Oki Elec. Indus. Co., Ltd., No. 12-cv-04175 EJD, 2014 WL 991102, at *4 (N.D. Cal. Mar. 11, 2014).
Miller has not stated a claim for fraud with the requisite particularity. The allegedly fraudulent representations giving rise to this claim are "the false and misleading communications directly to Plaintiff about their capabilities from the Defendants during the period of December 2012 through February 2014." Dkt. No. 1 at 10. However, those communications would have been to Ni Ne, the company, not Miller, the individual. Further, neither the Court nor the defendants are on notice of the time, place, parties, or the content of the alleged misrepresentations. NavCom, 2014 WL 991102, at *4. This claim is DISMISSED WITH LEAVE TO AMEND.
3. Miller Fails to State a Claim For Breach of Fiduciary Duty.
Both defendants move to dismiss Miller's breach of fiduciary duty claim.
Under Texas law, "[t]he elements of a breach of fiduciary duty claim are: (1) a fiduciary relationship between the plaintiff and defendant; (2) the defendant must have breached his fiduciary duty to the plaintiff; and (3) the defendant's breach must result in injury to the plaintiff or benefit to the defendant." Jones, 196 S.W.3d at 447. "Texas does not recognize a fiduciary duty or a duty of good faith and fair dealing owed by an employer to an employee." Beverick v. Koch Power, Inc., 186 S.W.3d 145, 153 (2005). There is no fiduciary duty between Miller and defendants, and based on the allegations, there is also not one between Ni Ne (the employee) and defendants (the alleged employers). Id. Ni Ne must provide facts showing some other way in which a fiduciary duty could exist between itself and defendants. Thus, the Court DISMISSES this claim WITH LEAVE TO AMEND.
California law is not to the contrary. O'Byrne v. Santa Monica-UCLA Med. Ctr., 94 Cal. App. 4th 797, 811 (2001); Arakelian v. Conquest, No. B161037, 2003 WL 22847091, at *12 (Cal. Ct. App. Dec. 2, 2003).
4. Miller Fails to State a Claim for Breach of Contract.
Both defendants move to dismiss Miller's breach of contract claim.
Texas law provides that "[t]he four elements of a breach of contract claim are: (1) the existence of a valid contract; (2) performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages to the plaintiff resulting from that breach." Velvet Snout, 441 S.W.3d at 451.
To the extent Miller seeks to allege the existence and breach of a verbal contract, he has failed to do so. The only allegation in his complaint regarding a verbal contract is: "Defendants failed to compensate the Plaintiff in accordance with the written and verbal contract commitments as defined in Exhibit A." Dkt. No. 1 at 4, 12 (there is passing reference to breach of a verbal contract in the introduction to the complaint). Exhibit A provides no clarity as to any alleged verbal contract. This purported claim fails to meet the pleading standards of Federal Rule of Civil Procedure 8(a)(2), because it does not present "a short and plain statement of the claim showing that the pleader is entitled to relief." The Court will not further consider such a claim in this order.
Here, Miller has sufficiently alleged there exists a written contract between Ni Ne and Displays, and that Displays breached it by not paying Ni Ne Trading Company the money owed to it. However, Miller is not a party to the contract between Ni Ne Trading Company and Displays, and so lacks standing to bring this claim on behalf of Ni Ne. Sharifi, LLC, 370 S.W.3d 126, 141-42.
E. The Court Grants the Motion to Strike Exhibit C to the Complaint.
Defendants also filed a motion to strike Exhibit C to the complaint, which is a complaint by the Securities and Exchange Commission against Reed Killion, Jeffrey Tomz, and Uni-Pixel, Inc. Dkt. Nos. 1-2, 12.
A court may strike from a pleading "any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). Immaterial matter "is that which has no essential or important relationship to the claim for relief or the defenses being pleaded." Fantasy Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds by, Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994) (internal citations and quotation marks omitted). Impertinent material "consists of statements that do not pertain, and are not necessary, to the issues in question." Id. However, motions to strike are disfavored "because the motions may be used as delaying tactics and because of the strong policy favoring resolution on the merits." Barnes v. AT & T Pension Ben. Plan-Nonbargained Program, 718 F. Supp. 2d 1167, 1170 (N.D. Cal. 2010). Further, such motions "are generally not granted unless it is clear that the matter to be stricken could have no possible bearing on the subject matter of the litigation." LeDuc v. Kentucky Cent. Life Ins. Co., 814 F. Supp. 820, 830 (N.D. Cal. 1992).
Here, the Court has reviewed Exhibit C, and STRIKES Exhibit C to the complaint. The Court is not striking Exhibit C because it is impertinent, redundant, or scandalous. The Court strikes Exhibit C because it is immaterial. The allegations in Exhibit C are voluminous, and are allegations regarding malfeasance by Mr. Killion and Tomz, as well as Uni-Pixel, but there are no allegations regarding Displays. Displays, not Uni-Pixel, nor Killion and Tomz in their personal capacities contracted with Ni Ne. Based on the complaint in its current form, Exhibit C has no possible bearing on this case. LeDuc, 814 F. Supp. at 830; Fantasy Inc., 984 F.2d at 1527.
Further, in the complaint, Miller did not refer to any specific portion of the SEC complaint as supporting his allegations. Neither the Court nor defendants are on notice of what specific allegedly false and misleading communications were made to Miller based on a highly detailed 19-page complaint. See Dkt. No. 1 at 9 ("Defendants supplied false information for the guidance of Ni Ne. This included, but is not limited to, the false and misleading communications directly to Plaintiff about their capabilities from the Defendants during the period of December 2012 through February 2014. Additional examples of these false and misleading communications can be found in Exhibit C . . . which were also communicated to Plaintiff during the same period"), 10 (nearly identical allegations and reference to Exhibit C regarding fraud claim). Miller must specifically write the relevant allegations as to "false and misleading communications" in his complaint if they exist against the right defendant. Attachment of a complaint in a different case without reference to the parts Miller wants the Court to consider is unacceptable.
The motion to strike is GRANTED.
IV. CONCLUSION
Because Miller lacks standing to bring a claim arising from the 2011 contract, and because he fails to state a claim, the Court DISMISSES the complaint. The claim for negligence is DISMISSED WITH PREJUDICE, and the other claims are DISMISSED WITH LEAVE TO AMEND, contingent on (1) the substitution of Ni Ne as plaintiff; and (2) Ni Ne retaining an attorney. Further, defendants' motion to strike is GRANTED. Plaintiff must move for leave to file an amended complaint, with the amended complaint attached, by August 18, 2017.
IT IS SO ORDERED. Dated: July 14, 2017
/s/_________
NATHANAEL M. COUSINS
United States Magistrate Judge