Opinion
2:24-cv-02389-MCS-KS
07-23-2024
Renovatio Tecnologia Digital Ltd. v. Dolphin Imaging & Mgmt. Sols, et al.
Present The Honorable Mark C. Scarsi, United States District Judge
CIVIL MINUTES - GENERAL
Proceedings: (In Chambers) Order on Plaintiff's Motion to Remand and Defendant's Motion to Dismiss (ECF Nos. 18,25)
Plaintiff Renovatio Tecnologia Digital Ltd. filed a motion to remand the case to Santa Barbara County Superior Court. (MTR, ECF No. 18.) Defendant Dolphin Imaging & Management Solutions, fonnerly known as Dolphin Imaging Systems, LLC, filed an opposition, (MTR Opp'n, ECF No. 20), and Plaintiff replied, (MTR Reply, ECF No. 22). Separately, Defendant filed a motion to dismiss Plaintiff's First Amended Complaint. (FAC, ECF No. 21: MTD, ECF No. 25.) Plaintiff opposed the motion, (MTD Opp'n, ECF No. 26), and Defendant replied, (MTD Reply, ECF No. 27). The Court heard argument on both motions on June 10, 2024. (Mins., ECF No. 28.)
I. BACKGROUND
In 2007, Plaintiff and Defendant entered into a contract pursuant to which Defendant granted Plaintiff “the rights to sell, lease, service and distribute [certain Dolphin] products . . . solely for medical applications within the geographical area of Brazil.” (Faltin Deci. Ex. 1, at 1, ECF No. 18-2; Thomas Deci. Ex. 1, at 1, ECF No. 25-2 (both, the “Contract”); see also FAC ¶ 7.) The parties operated under the Contract for roughly 16 years. (FAC ¶¶ 8-9, 15.) On March 30, 2023, Defendant notified Plaintiff of its intention to terminate the Contract, effective May 29, 2023, pursuant to a provision in the Contract allowing either party to terminate the Contract “for any reason” on 60 days' notice. (Contract 3; FAC ¶¶ 15-16.) Subsequently, Plaintiff brought the instant case in Santa Barbara County Superior Court alleging breach of contract, breach of the implied covenant of good faith and fair dealing, intentional interference with a contract, intentional interference with prospective economic advantage, and promissory estoppel. (See generally FAC ¶¶ 19-46.) Defendant removed the case to this Court, invoking diversity jurisdiction. (NOR, ECF No. 1.)
The Court may consider the Contract in connection with the motion to dismiss under the incorporation by reference doctrine. See Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006).
II. LEGAL STANDARDS
A. Motion to Remand
Federal courts are of limited jurisdiction, having subject-matter jurisdiction only over matters authorized by the Constitution and Congress. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A defendant may remove a civil action in state court to federal court if the federal court has original jurisdiction. 28 U.S.C. § 1441(a). To invoke diversity jurisdiction, a party must demonstrate there is complete diversity of citizenship between the parties and that the amount in controversy exceeds the sum or value of $75,000, exclusive of interest and costs. 28 U.S.C. § 1332(a). “[W]here it is unclear or ambiguous from the face of a state-court complaint whether the requisite amount in controversy is pled,” the removing defendant must establish by a preponderance of the evidence that the amount in controversy “more likely than not” exceeds $75,000. Guglielmino v. McKee Foods Corp., 506 F.3d 696, 699 (9th Cir. 2007); Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996).
There is a “strong presumption” against removal jurisdiction, and the removing party bears the burden of proving that removal is proper. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). “Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance.” Id.
However, “forum selection clause[s] operate[] outside of the various requirements for removal [jurisdiction].” Kamm v. ITEX Corp., 568 F.3d 752, 756 (9th Cir. 2009). Thus, a federal court may elect not to exercise jurisdiction over a case if a forum selection clause in an agreement between the parties compels them to litigate elsewhere. Id.
B. Motion to Dismiss
Federal Rule of Civil Procedure 12(b)(6) allows an attack on the pleadings for “failure to state a claim upon which relief can be granted.” “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
The determination of whether a complaint satisfies the plausibility standard is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. Generally, a court must accept the factual allegations in the pleadings as true and view them in the light most favorable to the plaintiff. Park v. Thompson, 851 F.3d 910, 918 (9th Cir. 2017); Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001). But a court is “not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555).
III. DISCUSSION
A. Motion to Remand
Plaintiff avers the action must be remanded to state court pursuant to a forum selection clause in the Contract. (MTR 5-10; see Contract 4.) Defendant argues Plaintiff's interpretation of the forum selection clause “runs afoul of basic canons of contract construction and fails as a matter of law.” (MTR Opp'n 1.)
At the hearing on this motion, the parties agreed this Court has subject-matter jurisdiction over this case pursuant to 28 U.S.C. § 1332(a). The decision to remand a case based on a forum selection clause is discretionary if a court has subject-matter jurisdiction. See Farmer Bean & Seed, LLC v. Pac. Grain & Foods, LLC, 495 F.Supp.3d 981, 984 (E.D. Wash. 2020) (“[E]ven if a court has subject matter jurisdiction, a case may nonetheless be remanded based on forum selection clause.” (emphasis added) (citing Kamm, 568 F.3d at 756)); Wood v. iGate Techs., Inc., 120 F.Supp.3d 989, 991 (N.D. Cal. 2015) (“A district court can certainly remand a case based on a forum-selection clause.” (emphasis added) (citing Kamm, 568 F.3d at 754)); WOF SW GGP 1, LLC v. Quasar Energy Grp., LLC, No. 3:18-cv-01475-AC, 2019 WL 3763768, at *3 (D. Or. June 3, 2019) (“Even if a court has subject matter jurisdiction over an action that has been removed, it may be remanded based on a forum selection clause.” (emphasis added) (citing Kamm, 568 F.3d at 756)). The Ninth Circuit does not require courts to remand pursuant to the existence of a valid forum selection clause.
Prudential considerations counsel against remand. First, Plaintiff raised the forum selection clause issue under the aegis of a subject-matter jurisdiction challenge, which does not present the appropriate framework for remand here. (Mot. 4-5.) Second, the parties could not provide the Court with a case discussing language similar to the ambiguous “therein” language in the forum selection clause at issue here. (Contract 4 (“This Agreement shall be construed in accordance with the laws of the State of California, and [Defendant] agrees to accept venue and submit to the exclusive jurisdiction of the courts therein.” (emphasis added)).) The clause could refer to state courts in California or bother federal and state courts located in California. The Court hesitates to remand given the lack of guiding authority controlling the interpretation of the clause. The Court elects to maintain jurisdiction over this matter at this time.
The Court denies Plaintiff's motion to remand.
B. Motion to Dismiss
Defendant moves to dismiss all of Plaintiff's claims pursuant to Rule 12(b)(6), arguing each fails as a matter of law. (MTD 10-26.) The Court addresses each argument in turn.
1. Breach of Contract
In Plaintiff's claim for breach of contract, Plaintiff alleges that Defendant breached the Contract in two ways: first, by delivering software to Plaintiff that “did not perform in accordance with the written product specifications or were otherwise defective in that the products did not incorporate effective security features,” (FAC ¶ 20), and second, by failing to “properly support[] Renovatio as to product and service issues, as required by the Contract.” (Id.) To succeed on a breach of contract claim under California law, a plaintiff must prove: “(1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff.” D'Arrigo Bros. of Cal. v. United Farmworkers of Am., 224 Cal.App.4th 790, 800 (2014) (internal quotation marks omitted). Defendant argues Plaintiff has failed to plausibly plead Defendant breached the Contract because: (1) Plaintiff failed to identify which of the many software products failed to perform in accordance with which written product specifications as required by which section of the Contract, and (2) Plaintiff's claim that Defendant was required to provide it support as to product and service issues is contrary to the express language of the Contract. (MTD 11-13.)
Defendant also moves to dismiss on the basis that the damages Plaintiff seeks are unrecoverable because the language of the Contract bars recovery of such damages. (MTD 13-14.) But “a complaint is not subject to a motion to dismiss for failure to state a claim under Rule 12(b)(6) because the prayer seeks relief that is not recoverable as a matter of law.” Saroya v. Univ. of Pac., 503 F.Supp.3d 986, 1000 (N.D. Cal. 2020); see also City of Los Angeles v. Lyons, 461 U.S. 95, 130 (1983) (Marshall, J., dissenting) (“The question whether a plaintiff has stated a claim turns not on whether he has asked for the proper remedy but whether he is entitled to any remedy.” (alterations incorporated) (internal quotation marks omitted)). Defendant's argument on this issue is better reserved for summary judgment.
To meet federal pleading requirements, a claimant need not attach the contract to its pleading or quote the contract verbatim, but the claimant must at least “identify and describe the provisions on which the right to recovery is based.” United Specialty Ins. Co. v. Meridian Mgmt. Grp., No. 15-cv-01039-HSG, 2015 U.S. Dist. LEXIS 104817, at *6-7 (N.D. Cal. Aug. 7, 2015) (collecting cases); accord, e.g., Grapevine Educ., LLC v. Educ. Ventures, LLC, No. 22-cv-01699-WQH-SBC, 2023 U.S. Dist. LEXIS 181487, at *9-10 (S.D. Cal. Aug. 21, 2023) (same); Rubie's, LLC v. First Am. Title Co., No. 1:18-cv-01052-DAD-SKO, 2020 U.S. Dist. LEXIS 236767, at *15-16 (E.D. Cal. Dec. 16, 2020) (same).
The first theory of breach does not meet this standard. Plaintiff fails to identify which of the many products Defendant supplied were defective or failed to perform in accordance with a written product specification in the Contract or incorporated into the Contract. (See FAC ¶ 20; see also MTD Opp'n 6-8; Contract app. A.)Although Plaintiff responds that the product being referenced is “[Defendant's] own software,” (Opp'n 6 (emphasis removed)), there are numerous different software products that might be the subject of this theory, (see Contract app. A). Plaintiff has not provided Defendant with enough information to understand the theory of breach sufficient to allow Defendant to formulate a defense against it. As to Plaintiff's second theory of breach, it argues that Paragraphs (f) and (k) of Defendant's “Duties and Rights” provision of the Contract required Defendant to “‘provide Renovatio with products support,' provide any ‘hardware and software technical consultation,' . . . provide ‘repair' services to fix the security problems with its software[,] . . . [and] provide general ‘support' as to sales and service issues,” which it avers requires Defendant to provide support in the face of a serious piracy issue. (MTD Opp'n 7 (quoting Contract 2).) Plaintiff is correct that Defendant was obligated by the language in the Contract to provide this assistance. (Id.) Plaintiff's second theory, however, claims that Defendant was required to provide anti-piracy protection or product and service support to respond to a piracy issue. (FAC ¶ 20.) Nothing in the paragraphs referenced by Plaintiff-or, in the Court's review, in any part of the Contract-obliges Defendant to provide this kind of assistance to Plaintiff. (See Contract 2.) Plaintiff has failed to plead facts to support its breach of contract claim. Plaintiff's first claim is dismissed.
The Contract makes several references to a “Schedule A,” which the Court understands to be the “Appendix A” attached to the version of the Contract Defendant submitted. (Thomas Decl. Ex. 1.)
2. Breach of the Implied Covenant of Good Faith and Fair Dealing
Plaintiff asserts two theories of Defendant's breach of the implied covenant of good faith and fair dealing: (1) Defendant induced Plaintiff “to incur substantial expense, to build business infrastructure, to enter into contracts . . . and to spend time and resources eradicating piracy of Dolphin's software . . . all while Dolphin knew (but failed to disclose) its intention to terminate abruptly,” (id. ¶ 25); and (2) Defendant unfairly frustrated Plaintiff's receipt of the benefits of the Contract stemming from Defendant's failure to ensure its products “included adequate antipiracy protections,” (id. ¶ 26).
“There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.” Comunale v. Traders & Gen. Ins. Co., 50 Cal. 2D 654, 658 (1958). “Although breach of a specific provision of the contract is not a necessary prerequisite to a claim of breach of the implied covenant, it is universally recognized the scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract.” Avidity Partners, LLC v. State, 221 Cal.App.4th 1180, 1204 (2013) (cleaned up). Stated differently, the implied covenant “cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of the agreement.” Guz v. Bechtel Nat'l Inc., 24 Cal.4th 317, 349-50 (2000).
First, Plaintiff argues that it reasonably expected its continued efforts to reduce piracy, along with Defendant's assurances their contractual relationship would continue, shows that “any abrupt termination by [Defendant] was in bad faith.” (MTD Opp'n 12.) At the hearing on this motion, Plaintiff did not contest that Defendant terminated the Contract in compliance with the sixty-day termination provision. (See FAC ¶¶ 15-16.) Plaintiff asks the Court to restrict Defendant's ability to “in its sole discretion, terminate this [Contract] for any reason in writing upon sixty (60) days,” (Contract 3), based on its subjective belief that the contractual relationship between the parties would continue, (MTD Opp'n 10-12). Here, the reviewable record is susceptible only to a plausible inference that Defendant exercised its termination right appropriately by notifying Plaintiff of its intention to terminate the Contract with 60 days' notice. (See FAC ¶ 15; see also Contract 3-4.) Vindication of Plaintiff's first implied covenant theory would impose a substantive limit on Defendant's rights inconsistent with the terms of the Contract, so the claim may not be sustained. Guz, 24 Cal.4th at 349-50. Therefore, Plaintiff's second claim is dismissed.
Second, Plaintiff argues Defendant breached the implied covenant by failing to ensure its software adequately protected against piracy, unauthorized use, and counterfeiting. (FAC ¶ 26.) As expressed supra, the Contract did not require Dolphin to employ software protections for its products. Finding in Plaintiff's favor would read into the Contract an obligation the parties did not bargain for, which the Court is foreclosed from doing. Guz, 24 Cal.4th at 349-50. Thus, Plaintiff's claim may not be sustained under this theory.
3. Tortious Interference Claims
Plaintiff asserts a claim against Defendant for intentional interference with a contract, (FAC ¶¶ 28-33), and a claim for intentional interference with prospective economic advantage, (id. ¶¶ 34-41). Specifically, Plaintiff avers (1) Defendant intended to disrupt the performance of Plaintiff's customer contracts by terminating the Contract; (2) Plaintiff would have received an economic benefit from the continued economic relationship between Plaintiff and its customers, but Defendant intended to disrupt this potential economic benefit by terminating the Contract. (Id. ¶¶ 31, 35-38.)
To state a claim for intentional interference with a contract, a plaintiff must plead “(1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1126 (1990). The related tort of intentional interference with prospective economic advantage “does not depend on the existence of a legally binding contract.” Ixchel Pharma, LLC v. Biogen, Inc., 9 Cal. 5th 1130, 1141 (2020). “A plaintiff asserting this tort must show that the defendant knowingly interfered with an economic relationship between the plaintiff and some third party, which carries the probability of future economic benefit to the plaintiff,” and “that the defendant's conduct was wrongful by some legal measure other than the fact of interference itself.” Id. at 1141-42 (cleaned up).
Defendant raises justification as an affirmative defense warranting dismissal of Plaintiff's third and fourth claims. (MTD 10-11.) If Defendant was justified in terminating the Contract pursuant to its terms, neither of Plaintiff's intentional interference claims can stand. See, e.g., Nev. Deanza Fam. Ltd. P'ship v. Tesoro Ref. & Mktg. LLC, No. 19-cv-03773-NC, 2020 WL 6588606, at *2 (N.D. Cal. Oct. 1, 2020) (determining “intentional acts” element of intentional interference with a contract where defendant acted “with a ‘legitimate business purpose' and was ‘justified' in enforcing the terms of its contract”); see also SIC Metals, Inc. v. Hyundai Steel Co., 442 F.Supp.3d 1251, 1256 (C.D. Cal. 2020) (“[I]f a defendant's ‘conduct was lawful and undertaken to enforce its rights,' it cannot be held liable for intentional interference with a contract even if it knew that such conduct might interrupt a third party's contract.” (quoting Webber v. Inland Empire Invs., 74 Cal.App.4th 884, 905 (1999))); see also Salon Supply Store, LLC v. Creative Nail Design, Inc., No. 14-cv-01083-BAS (RBB), 2015 WL 11438492, at * 7 (S.D. Cal. June 19, 2015) (finding interference is not wrongful when a party is in pursuit of legitimate business interests, but that a plaintiff can defeat a claim of justification by proving defendant's conduct was unlawful.). Here, Defendant “acted in conformity with the [Contract]” by terminating its relationship with Plaintiff with 60 days' notice. Nev. Deanza, 2020 WL 6588606, at *2. (See Contract 3.) This conduct was within Defendant's contractual rights and, thus, cannot form the basis of Plaintiff's intentional interference claims.
Although Defendant raises justification as an affirmative defense, the Court understands its argument to undermine elements of Plaintiff's prima facie case. See Nev. Deanza Fam. Ltd. P'ship v. Tesoro Ref. & Mktg. LLC, No. 19-cv-03773-NC, 2020 WL 6588606, at *2 (N.D. Cal. Oct. 1, 2020).
Plaintiff's third and fourth claims are dismissed.
4. Promissory Estoppel
In its promissory estoppel claim, Plaintiff avers Defendant “promised that if Renovatio invested the time and resources to reduce and eradicate the piracy, Dolphin would continue to support Renovatio as a distributor of its products.” (FAC ¶ 43.) Plaintiff avers Dolphin's abrupt termination of the Contract injured it because it relied on Defendant's promise of support. (Id. ¶ 45.)
To state a claim for promissory estoppel under California law, a plaintiff must plead “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) the reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 792 (9th Cir. 2012).
Defendant moves to dismiss Plaintiff's claim for promissory estoppel on three bases, though the Court need only address its first challenge. Defendant argues the Contract governs the parties' relationship and, therefore, Plaintiff cannot maintain its claim for promissory estoppel on the same subject matter governed by the Contract. (MTD 23-24.) Plaintiff argues that Defendant's “promise of a continuing business relationship is not in the parties' contract,” and, therefore, the promissory estoppel claim may lie. (MTD Opp'n 15.) Plaintiff's assertion is contrary to the language of the Contract. Plaintiff pleads that the Contract is valid and binding. (FAC ¶ 7.) Although the Contract does not discuss Defendant's purported promise to Plaintiff for the continuance of their business relationship so long as Plaintiff took efforts to eradicate piracy, it does contemplate the circumstances under which the parties' business relationship may continue or cease. (See Contract 3.) “[I]t is well settled that an action for promissory estoppel cannot lie where ‘a valid contract, supported by consideration, governs the same subject matter as the alleged promise.'” Chavez v. CITImortgages, Inc., No. 5:12-CV-1617-SVW-OP, 2012 WL 12895843, at *4 (C.D. Cal. Dec. 10, 2012) (quoting Horne v. Harley-Davison, Inc., 660 F.Supp.2d 1152, 1163 (C.D. Cal. 2009)). Plaintiff's claim for promissory estoppel amounts to another attempt to assert a claim against Defendant for exercising their contractual right to terminate the parties' business relationship. The Contract clearly governs the existence and cessation of the parties' business relationship and, therefore, Plaintiff's claim for promissory estoppel based on an extracontractual promise about the maintenance of the relationship cannot stand and must be dismissed.
5. Leave to Amend
Plaintiff does not request leave to amend the complaint. Notwithstanding, the Court analyzes whether granting such leave is appropriate here. As a general rule, leave to amend a dismissed claim should be freely granted unless it is clear the complaint could not be saved by any amendment. Fed.R.Civ.P. 15(a); Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). However, “[c]ourts are not required to grant leave to amend if a complaint lacks merit entirely.” Lopez v. Smith, 203 F.3d 1122, 1129 (9th Cir. 2000) (en banc). The Court doubts Plaintiff could cure its second, third, fourth, or fifth claims given each is premised on Defendant's termination of the Contract in accordance with the terms of the termination provision or on a theory that contradicts the language of the Contract. (E.g., FAC ¶¶ 14-16.) However, given the Ninth Circuit's liberal standard on permitting amendments to pleadings, the Court grants Plaintiff leave to amend all of its claims.
IV. CONCLUSION
Plaintiff's motion to remand is denied. Defendant's motion to dismiss is granted, and the First Amended Complaint is dismissed in its entirety. Plaintiff shall file an amended complaint within 14 days of this Order, provided Plaintiff can amend without violating Federal Rule of Civil Procedure 11(b). Failure to timely amend will waive the right to do so. Leave to add new claims or parties must be sought in a properly noticed motion. Plaintiff shall include as an exhibit “a ‘redline' version of the amended pleading showing all additions and deletions of material.” (Initial Standing Order § 10(a), ECF No. 9.)
IT IS SO ORDERED.