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ACCUIMAGE DIAGNOSTICS CORP. v. TERARECON

April 18, 2003

ACCUIMAGE DIAGNOSTICS CORP., A NEVADA CORPORATION, PLAINTIFF,
v.
TERARECON, INC., A DELAWARE CORPORATION; ROBERT TAYLOR, AN INDIVIDUAL; DOUGLAS BOYD, AN INDIVIDUAL; MOTOAKI SAITO, AN INDIVIDUAL; AND DOES 1 TO 100. INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Marilyn Patel, Chief Judge District.

MEMORANDUM & ORDER RE MOTION TO DISMISS

BACKGROUND*fn1

Plaintiff AccuImage and defendant TeraRecon are corporations engaged in the development of software for the medical imaging applications business.

In 1996, AccuImage began developing its AccuView Diagnostic Imaging Workstation ("AccuView"), which is a computer software system for the management and post-processing of medical imaging data from various devices, including CT scans and other imaging modalities. In 1999, AccuImage received FDA approval for the Accuview Workstation. AccuView utilizes plug-in software modules to expand its capabilities to provide advanced processing functions. One such module developed by AccuImage, the AccuScore program, enables physicians to analyze and generate reports detailing the amount of calcium in patients' coronary arteries in minutes. This capability and AccuScore's comprehensive, user-configurable report generation and database package pubportedly gives AccuImage a competitive advantage over other companies in the medical imaging application business, such as defendant TeraRecon. The source code for the AccuScore application, patient database, and report generator is the intellectual property of AccuImage.

Defendant Taylor worked on the AccuScore program as a consultant and employee of AccuImage and later became AccuImage's Chief Executive Officer. In these capacities with AccuImage, Taylor executed an Employment Agreement, which contained a "Non-Solicitation and Non-Competition" provision, in addition to a "Confidentiality, Trade Secrets, and Assignment of Inventions" provision. In late October 2000, Taylor began having disagreements with the AccuImage Board of Directors. Although Taylor resigned from his position as CEO in November 2000, he asked to remain an AccuImage employee while he began circulating his resume to other companies because of concerns about his immigration status. AccuImage complied with Taylor's request and appointed him Chief Technology Officer pursuant to the terms of a two-month employment agreement. While still an AccuImage employee, Taylor allegedly assisted TeraRecon at an industry trade show in late November 2000.

Defendant Saito is the founder, President, Chief Executive Officer and Chairman of the Board of TeraRecon. In this capacity, Saito expressed an interest in hiring Taylor to defendant Boyd, who plaintiff claims was then both an AccuImage board member and a major TeraRecon shareholder. When AccuImage expressed concern to Boyd about Saito's interest in hiring Taylor, Boyd allegedly assured AccuImage there was no need for concern because TeraRecon was not going to hire Taylor.

In early 2001, TeraRecon purchased the Real Time Visualization division of Mitsubishi Electric, whose IiVS workstation performed medical image processing. Plaintiff claims, however, that the IiVS workstation had no calcium scoring capabilities whatsoever, nor did TeraRecon have such capabilities as of the beginning of 2001.

In February 2001, Taylor resigned his position with AccuImage and immediately started working for TeraRecon as its Chief Operating Officer and Executive Vice-President. Plaintiff claims that when Taylor resigned, Boyd allowed Taylor to keep his AccuImage laptop computer, which contained highly confidential and sensitive proprietary and trade secret information. At the same time, TeraRecon hired away several other key AccuImage employees who had knowledge and possession of AccuImage's source code and proprietary information.

Plaintiff claims that less than two months after Taylor's arrival, TeraRecon publicly demonstrated a new product called the Aquarius Workstation, which was a renamed version of the IiVS workstation with a calcium scoring capability. TeraRecon was granted FDA approval for the Aquarius Workstation in May 2001. AccuImage claims that TeraRecon's Aquarius workstation utilizes the source code for the AccuScore software program.

Based on the above conduct, AccuImage alleges that TeraRecon, Taylor, Saito and Boyd conspired to steal AccuImage's trade secrets and proprietary information. Beginning in November 2000, plaintiff claims that defendants created a plan to obtain a calcium scoring capability because defendants realized that such capability would improve TeraRecon's sales prospects. AccuImage also claims that TeraRecon previously expressed an interest in acquiring AccuImage, but that when this plan did not work out, Taylor's departure from AccuImage provided defendants with the opportunity it needed to obtain the calcium scoring capability.

In addition, plaintiff claims that defendants competed unfairly against AccuImage by making false representations about AccuImage's products to actual and potential AccuImage customers around the country. Given TeraRecon's use of the look and feel of the AccuScore program's reports in its Aquarius workstation, plaintiff maintains that defendants are intentionally trying to confuse and win over AccuImage's customers by persuading them to buy TeraRecon's product instead. Specifically, plaintiff claims that defendants have intentionally misled existing and potential AccuImage customers by telling them that AccuImage's products are not FDA approved.

On October 17, 2002, AccuImage filed a complaint alleging twelve causes of action against TeraRecon, Taylor, Saito and Boyd for: 1) false advertising in violation of the Lanham Act; 2) trade dress infringement in violation of the Lanham Act; 3) unfair competition; 4) violation of California Business and Professions Code section 17500; 5) trade secret misappropriation in violation of California Civil Code section 3426 et seq.; 6) common law misappropriation; 7) conspiracy; 8) breach of fiduciary duty; 9) breach of contract; 10) intentional interference with economic advantage; 11) negligent interference with economic advantage; and 12) unjust enrichment. Many of plaintiff's claims are brought against both TeraRecon and against Saito or Boyd in their capacity as directors, officers or shareholders of AccuImage and TeraRecon. In the complaint, AccuImage maintains that the conduct of TeraRecon, Taylor, Saito and Boyd has and will cause injury to AccuImage in an amount to be proven at trial, but in excess of $3,000,000.

On December 13, 2002, Boyd filed a motion to dismiss claims five, six, seven, eight and twelve. On December 20, 2002, TeraRecon, Taylor and Saito filed a joint motion to dismiss the following claims: TeraRecon moved to dismiss claims one, two, six, seven, ten and eleven; Taylor moved to dismiss claims one, six, seven, ten and eleven; and Saito moved to dismiss claims four, five, six, seven and twelve.

LEGAL STANDARD

I. Motion to Dismiss

A motion to dismiss for failure to state a claim will be denied unless it appears that the plaintiff can prove no set of facts which would entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Fidelity Fin. Corp. v. Fed. Home Loan Bank of S.F., 792 F.2d 1432, 1435 (9th Cir. 1986), cert. denied, 479 U.S. 1064, 107 S.Ct. 949, 93 L.Ed.2d 998 (1987). All material allegations in the complaint will be taken as true and construed in the light most favorable to the plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1152 (9th Cir. 1989). Indeed, "[t]he issue is not whether the plaintiff will ultimately prevail, but whether [the plaintiff] is entitled to offer evidence to support [the plaintiff's] claim." Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987).

Finally, while Rule 8(f) of the Federal Rules of Civil Procedure requires a liberal reading of complaints, Yamaguchi v. United States Dept. of the Air Force, 109 F.3d 1475, 1480-81 (9th Cir. 1997), "conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim." Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996).

DISCUSSION

Each ground for dismissal will be considered in turn.

I. Claim Seven — Conspiracy

As a threshold matter, civil conspiracy is not a separate and distinct cause of action under California law. Entm't Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1228 (9th Cir. 1997), cert. denied, 523 U.S. 1021, 118 S.Ct. 1302, 140 L.Ed.2d 468 (1998). Therefore. the court dismisses claim seven against all defendants with prejudice because plaintiff cannot plead conspiracy as an independent cause of action. See id.

While "[c]ivil conspiracy is not a cause of action," it is "a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration." Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 510-511, 28 Cal.Rptr.2d 475, 869 P.2d 454 (1994). To properly plead a conspiracy cause of action, the plaintiff must allege "the formation and operation of the conspiracy and damage resulting to plaintiff from an act or acts done in furtherance of the common design." Mox, Inc. v. Woods, 202 Cal. 675, 677, 262 P. 302 (1927). Yet "agents and employees of a corporation cannot conspire with their corporate principal or employer where they act in their official capacities on behalf of the corporation and not as individuals for their individual advantage." Black v. Bank of America, 30 Cal.App.4th 1, 4-5, 35 Cal.Rptr.2d 725 (1994) (internal quotations omitted); Wise v. S. Pacific Co., 223 Cal.App.2d 50, 72-73, 35 Cal.Rptr. 652 (1963), overruled on other grounds by Applied Equip., 7 Cal.4th 503, 28 Cal.Rptr.2d 475, 869 P.2d 454 (1994). Specifically, the "agent's immunity rule" proscribes conspiracy claims between and against agents and their principals. See Doctors' Co. v. Super. Ct., 49 Cal.3d 39, 45, 260 Cal.Rptr. 183, 775 P.2d 508 (1989). But the agent's immunity rule does not apply in cases where directors and officers of a corporation "directly order[ ], authorize[ ], or participate[ ] in the tortious conduct." Wyatt v. Union Mortgage Co., 24 Cal.3d 773, 785, 157 Cal.Rptr. 392, 598 P.2d 45 (1979).

However, plaintiff cannot indiscriminately allege that conspiracies existed between and among all defendants. Given the holdings of Black and Wise, plaintiff cannot state a claim against Saito for conspiring with TeraRecon while he was acting in his official capacity. See Black, 30 Cal.App.4th at 4-5, 35 Cal.Rptr.2d 725; Wise, 223 Cal.App.2d at 72-73, 35 Cal.Rptr. 652. Plaintiff may, however, amend the complaint to allege conspiracies between, for example, Boyd and Taylor (after Taylor left AccuImage) or Saito and Boyd if they acted beyond the scope of their employment so long as such allegations do not run afoul of Black and Wise. Plaintiff also cannot allege a conspiracy involving Taylor to interfere with his AccuImage employment contract because there is no tort liability against a party to a contract who breaches or interferes with the contract. See Applied Equip., 7 Cal.4th at 515, 28 Cal.Rptr.2d 475, 869 P.2d 454 (holding that a stranger to the contract may be liable in tort for interfering with the contract, but not a party to the contract itself).

II. Claim One — Violation of the Lanham Act section 43(a)

Plaintiff alleges that TeraRecon and Taylor have engaged in false advertising in violation of section 43(a) of the Lanham Act. Compl. ΒΆΒΆ 36-41. Defendants move to dismiss this claim because they argue plaintiff did not allege facts with ...


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