Opinion
Case No.: 16-CV-704-BTM-JLB
02-19-2019
Youngevity International, et al., Plaintiff, v. Todd Smith, et al., Defendant.
ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND DENYING IN PART AND GRANTING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AS TO PLAINTIFFS' THIRD CAUSE OF ACTION [ECF Nos. 302, 339]
Presently before the Court are Plaintiffs' and Defendants' motions for summary judgment as to Plaintiffs' third cause of action for tortious interference with prospective economic advantages. (ECF Nos. 302 ("Defs.' MSJ III"), 339 (Pls.' MSJ III").) For the reasons discussed below, the Court denies Plaintiffs' motion and denies in part and grants in part Defendants' motion.
I. STANDARD
Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure if the moving party demonstrates the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material when, under the governing substantive law, it could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Anderson, 477 U.S. at 323.
On cross motions for summary judgment, a court "evaluate[s] each motion separately, giving the nonmoving party in each instance the benefit of all reasonable inferences." ACLU v. City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir. 2006) (internal citations omitted). The burdens faced by the opposing parties vary with the burden of proof they will face at trial. When the moving party bears the burden of proof at trial, "'his showing must be sufficient for the court to hold that no reasonable trier of fact could find other than for the moving party." Indep. Cellular Tel., Inc. v. Daniels & Assocs., 863 F. Supp. 1109, 1113 (N.D. Cal. 1994) (quoting Schwarzer, Summary Judgment Under the Federal Rules: Defining Genuine Issues of Material Fact, 99 F.R.D. 465, 487-488 (1984)). By contrast, when the moving party does not bear the burden of proof at trial, "the [moving party] need only point to the insufficiency of the [nonmoving party's] evidence to shift the burden to the [nonmoving party] to raise genuine issues of fact as to each claim by substantial evidence." Id. (quoting T.W. Elec. Serv. Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987)). If the nonmoving party then fails to raise a genuine issue of fact, the court should grant summary judgment in favor of the moving party. Id.
The court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). "Credibility determinations, the weighing of evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge, [when] he [or she] is ruling on a motion for summary judgment." Anderson, 477 U.S. at 255.
II. DISCUSSION
To prevail on a claim of tortious interference with prospective economic relationship, a plaintiff must prove: "(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant." Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153 (2003). It is not necessary to prove that the defendant acted with the specific intent of disrupting the plaintiff's prospective economic relationship, just that the defendant "knew that the interference was certain or substantially certain to occur as a result of its action." Id. at 1153. A plaintiff must also prove that a defendant's acts "are wrongful apart from the interference itself." Id. at 1154. That is, that an act "is proscribed by some constitutional, statutory, regulatory, common law, or other determinable standard." Id. at 1159.
Plaintiffs assert two sub-claims under their third cause of action for intentional interference with prospective economic advantages. Both parties move for summary judgment as to sub-claim III.A, while only Defendants move for summary judgment as to sub-claim III.B. The Court discusses each motion below. A. Claim III.A—Intentional Interference with Prospective Economic Relationship Against Defendants Todd Smith, Blake Graham, and Wakaya
Plaintiffs bring a claim against Defendants Todd Smith ("T. Smith"), Blake Graham ("Graham"), and Wakaya for allegedly interfering with Youngevity's prospective economic relationship with the Great American Clay Company ("GAC").
In the summer of 2015, Mia Magistro ("Magistro"), a Youngevity distributor in Defendant Total Nutrition Team's ("TNT") "downline.," introduced GAC to her upline distributors T. Smith and Graham to potentially create a business opportunity for Youngevity. (Pl.s' MSJ III, Ex. B 21:5-5; 32:22-33:2; 35:10-11; 36:4-37:8; Ex. E 141:23-142:4.) TNT was owned by T. Smith and Graham. (Pl.s' MSJ III, Ex. C 67:13-16.) Magistro set up an initial meeting between T. Smith, Graham, herself, and David Smith ("D. Smith"), GAC's owner. (Pls.' MSJ III, Ex. E 16:1-17:21.) During the meeting, D. Smith gave T. Smith and Graham a presentation about GAC with the understanding that he was meeting with Youngevity representatives. (Id.; 142:17-143:9) The meeting took place at TNT's offices where Youngevity's products and signs were displayed. (Id. at 25:1-20.) D. Smith understood that T. Smith and Graham were negotiating on Youngevity's behalf. (Id. at 23:2-9.) During that meeting, T. Smith and Graham gave D. Smith Youngevity products to sample. (Id. at 15:9-17.) Additionally, T. Smith used his Youngevity email address to communicate with D. Smith. (Id. at 27:18-28:18.)
Through fall of 2015, T. Smith and Graham delayed moving forward with GAC's and Youngevity's business opportunity. (Id. at 37:10-25.) On October 22, 2015, D. Smith was still interested in moving forward with Youngevity and reached out to Magistro in an attempt to directly arrange a meeting with Dr. Wallach. (Id. at 39:1-4.) A meeting was scheduled for either November 2 or 3, 2015. (Id. at 170:23-171:6.) However, by October 31, 2015, T. Smith and Graham had assured D. Smith that Youngevity would do business with GAC. (Id. at 42:5-44.) As a result of these reassurances, D. Smith canceled his meeting with Dr. Wallach. (Id. at 45:19-25; 69:3-15.) A couple of weeks prior to signing the agreement on December 20, 2015, T. Smith informed D. Smith that GAC was not contracting with Youngevity, but instead with T. Smith as an individual. (Defs.' Opp'n to Pl.s' MSJ III, ECF No. 367, Ex. 1 184:3-9.) Despite feeling misled, D. Smith nevertheless entered into a contract with T. Smith. (Pls.' MSJ III, Ex. E 200:25-201:14.)
Based on these facts, both Plaintiffs and Defendants move for summary judgment on Plaintiffs' sub-claim III.A.
A. Defendants' MSJ
Defendants argue that Plaintiffs claim fails as a matter of law because they have failed to show any evidence of a prospective economic relationship, an independently wrongful act, or damages.
1. Economic Relationship
Defendants argue that Plaintiffs claim fails because Youngevity distributors, including Defendants, are under no obligation to present GAC to Youngevity. However, a duty to present an economic relationship to a plaintiff is not an element of this claim. See Korea Supply Co., 29 Cal. 4th at 1153. Plaintiffs have submitted evidence that Magistro brought GAC's business opportunity to T. Smith and Graham with the intentions of presenting it as a business opportunity for Youngevity. (Pl.s' MSJ III, Ex. B 32:22-33:2; 35:10-11.) Additionally, D. Smith unequivocally testified that his intentions were to explore a business opportunity in which GAC would manufacture products and Youngevity would distribute them. (Pls.' MSJ III, Ex. E 21:4-19.) Taking these facts in the light most favorable to Plaintiffs, the Court cannot say as a matter of law that a reasonable jury would not find that an economic relationship existed that presented a probability of future economic benefits to Plaintiffs.
2. Independently Wrongful Act
Defendants also argue that Plaintiffs have failed to submit any evidence of an independently wrongful act. Defendants argue that the evidence does not support that they mislead D. Smith about negotiating on Youngevity's behalf. However, D. Smith's testimony supports that exact claim. Indeed, D. Smith testified that T. Smith did not tell him until about two weeks before signing the contract that GAC was not contracting with Youngevity. (Defs.' Opp'n to Pl.s' MSJ III, Ex. 1 184:3-9.) Additionally, Plaintiffs argue that Defendants infringed on Youngevity's trademark in violation of 15 U.S.C. § 1114 by using the Youngevity mark to commercially advance Wakaya. Plaintiffs have submitted evidence that Defendants held the initial meeting with D. Smith at the TNT offices, which prominently displayed Youngevity signs, and gave him Youngevity products to sample. There is also evidence to support that T. Smith used his Youngevity email address to communicate with D. Smith. Construing these facts in the light most favorable to Plaintiffs, the evidence creates at least a genuine issue of material fact as to whether Defendants committed an independently wrongful act.
3. Damages
Lastly, Defendants argue that Plaintiffs cannot demonstrate that the alleged interference proximately caused them damages. However, Plaintiffs have presented evidence of future lost profits related to GAC. (Pls.' MSJ III, Ex. J, 10.) This, coupled with D. Smith's testimony that GAC was looking for a relationship with Youngevity similar to what it formed with Wakaya leads the Court to believe that a reasonable jury could find in Plaintiffs' favor as to damages.
Defendants argue that Plaintiffs cannot prove damages because they have critiqued GAC's products as unhealthy which demonstrates that they would not have entered into such a relationship and profited from GAC's products. Steve Wallach, however, testified that Youngevity had long been interested in selling clean clay products and would have liked the opportunity to explore its options with GAC. (Pls.' Reply, ECF No. 379, Ex. C 271:7-272:19.) While these arguments lend better support to the claim that GAC and Youngevity did not hold a prospective economic relationship, on summary judgment, the Court cannot weigh the credibility of a witness and therefore views Steve Wallach's testimony in the light most favorable to Plaintiffs.
Accordingly, the Court finds that because Plaintiffs have met their burden in raising genuine issues of material fact, the Court must deny Defendants' motion for summary judgment as to sub-claim III.A.
B. Plaintiffs' MSJ
Plaintiffs argue that the Court should grant them summary judgment because there is sufficient evidence to prove all of the elements of this claim.
As already discussed, Plaintiffs have presented evidence that Magistro brought GAC's business opportunity to T. Smith and Graham with the intentions of brokering a business opportunity for Youngevity because D. Smith sought a relationship with Plaintiffs. (Pl.s' MSJ III, Ex. B 32:22-33:2; 35:10-11; Ex. E 21:4-19.) Plaintiffs have also produced evidence to support the claim that Defendants misled D. Smith into believing that he was negotiating with Youngevity, which eventually led him to cancel a scheduled meeting with Dr. Wallach. As a result, Plaintiffs contend that GAC entered into an agreement with T. Smith which caused Youngevity to lose a business opportunity and profits. Plaintiffs additionally provide evidence that Defendants' interference was independently wrongful because they deceived GAC into believing they were acting on Youngevity's behalf by misusing Youngevity's trademark in violation of the Lanham Act.
While the Court notes that Plaintiffs' evidence of an intentional interference is particularly strong, when taking the facts in the light most favorable to Defendants, the Court cannot conclude as a matter of law that Plaintiffs would prevail. In particular, the issues of whether Defendants infringed on Youngevity's trademark and damages remain genuine issues of material fact. Thus, the matter should be tried by a jury and the Court denies Plaintiffs' motion for summary judgment as to sub-claim III.A. B. Claim III.B—Intentional Interference with Prospective Economic Relationship Against All Defendants
Plaintiffs assert sub-claim III.B against all Defendants for allegedly interfering with Youngevity's prospective economic relationships with its distributors by recruiting them to Wakaya and encouraging them to cross-recruit other distributors to Wakaya. Plaintiffs allege that Defendants' intentional acts led Youngevity distributors to either decrease their sale of Youngevity products or altogether leave for Wakaya, thereby causing it to lose profits.
1. Economic Loss Rule
First, relying on Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979, 988 (2004), Defendants argue that Plaintiffs' claim against those Defendants who were former Youngevity distributors, including Andre Vaughn, TNT, Graham, Smith, Dave Pitcock, and Barb Pitcock, is barred by the economic loss rule because the claim is premised on their alleged "cross-recruiting" which is governed by contract, not tort. However, Defendants have not cited to any case that extends the economic loss rule beyond cases involving the sale of commercial goods. The economic loss rule arose from a products liability case. Id. at 988. The rule provides: "[w]here a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only 'economic losses.'" Id. Indeed, the Supreme Court of California in Robinson Helicopter made clear that "[t]his doctrine hinges on a distinction drawn between transactions involving the sale of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner in which has traditionally been remedied by resort to the law of torts." Id. (internal citations omitted). Thus, absent authority that extends the economic loss rule beyond cases involving the sale of goods, the Court will not apply this doctrine to bar Plaintiffs' claim.
While the economic loss rule in particular does not apply in this case, Defendants' intuitions are correct. Under California law, a party may not recover in tort for a claim that is substantially premised on a breach of contract. See JRS Prods., Inc. v. Matsushita Elec. Corp. of Am., 115 Cal. App. 4th 168, 179 (2004). "[T]he essential nature of the conduct determines whether the action sounds in contract or in tort." Id. at 182. Here, Plaintiffs clearly premise their intentional interference with prospective economic relations against Defendants Vaughn, Graham, TNT, Smith, and the Pitcocks on conduct that constitutes a breach of their own distributor agreements, namely cross-recruiting. These Defendants were all former Youngevity distributors who were bound by distributor agreements which contained a provision strictly prohibiting "cross-recruiting." (Fourth Am. Compl. ("FAC"), ECF No. 269 ¶ 295.) The distributor agreement provides:
Distributors are strictly forbidden from Cross-Recruiting, and shall not sell, recruit, propose, or in any other way induce or attempt to induce any other Distributor to purchase any product or service, or to participate in any other income opportunity, investment, venture, or commit any other activity deemed, at the full discretion of the Company, as cross-recruiting. . . Any Distributor violating this provision may be subject to immediate termination for cause, forfeiting any and all commissions due him or her.(Id.)
While Plaintiffs' artful pleading carefully avoids labeling Defendants' recruiting of other Youngevity distributors to Wakaya as "cross-recruiting," that conduct is precisely what they complain caused the intentional interference with prospective economic relations. Indeed, Plaintiffs allege that "Defendants took intentional acts to disrupt the economic relationships between Youngevity and their distributors because they contacted Youngevity distributors and encouraged them simultaneously to join Wakaya and to urge other Youngevity distributors simultaneously to join Wakaya." (FAC ¶ 265. (emphasis added).)
Similarly, Plaintiffs claim against Patti Gardner is premised on the alleged breach of her nondisclosure agreement with Youngevity, as they argue that she intentionally interfered with Youngevity's prospective economic relationships by using Youngevity's confidential information to reach out to Youngevity distributors and introduce them to Wakaya. California courts are clear that "a breach of contract claim cannot be transmuted into tort liability by claiming that the breach interfered with the promisee's business." JRS Prods., Inc., 115 Cal. App. 4th at 183 (quoting Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co., 47 Cal. App. 4th 464, 479 (1996)).
Accordingly, Defendants' motion for summary judgment is granted as to Defendants Vaughn, Smith, Graham, TNT, the Pitcocks, and Gardner.
2. Remaining Defendants
Defendants argue that Plaintiffs' claim also fails as to the remaining Defendants because there is no evidence that they engaged in any intentional and independently wrongful acts that actually induced Youngevity distributors to cross-recruit other distributors to Wakaya. The Court agrees.
First, as to Wakaya and Brytt Cloward, Plaintiffs merely argue that they used a marketing brochure with the intent to attract Youngevity distributors. (ECF No. 296, Ex. Y, EE.) This clearly is not enough to arise to a tortious interference with prospective economic relations. Also as to Wakaya, Plaintiffs argue that through Mike Randolph, Wakaya provided Youngevity distributors with a form that they could present to other Youngevity distributors when cross-recruiting them into Wakaya. (ECF No. 296, Ex. FF-GG.) However, Plaintiffs merely submit evidence of a "non-solicitation" statement that even construing it in the light most favorable to Plaintiffs still falls shorts of amounting to evidence of an independently wrongful act or actual disruption.
Lastly, as to Randolph and Mike Casperson, Plaintiffs argue that summary judgment is premature because they moved for more discovery under Federal Rule of Civil Procedure 56(d). Since then, the Magistrate Judge granted Plaintiffs leave for additional discovery. (ECF No. 406.) However, Plaintiffs never submitted supplemental briefing. Therefore, Plaintiffs have not submitted sufficient evidence to withstand a motion for summary judgment. Thus, the Court finds that as a matter of law Plaintiffs' claim fail as to Wakaya, Cloward, Randolph, and Casperson.
III. CONCLUSION
For the reasons discussed above, the Court DENIES Plaintiffs' motion for summary judgment (ECF No. 339) and DENIES in part and GRANTS in part Defendants' motion for summary judgment (ECF No. 302). The Court GRANTS Defendants' motion as to Plaintiffs III.B claim.
IT IS SO ORDERED.
Dated: February 19, 2019
/s/_________
Honorable Barry Ted Moskowitz
United States District Judge