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Berster Technologies, LLC v. Coy Christmas

November 2, 2011



This case was on the court's calendar on September 14, 2011 for argument on defendant's motion to dismiss. Paul Andre and Yuridia Caire, King & Spalding LLP, appeared for defendants; Scott Pink, Daniel Croxall and Rajiv Dharnidharka, DLA Piper LLP, appeared for plaintiff.

I. Background

On June 20, 2011, plaintiff Berster Technologies, LLC, doing business as Chip Connect, filed a first amended complaint naming five defendants: Coy Christmas, Jim Ronding, BGRMods LLC, Calibur11 LLC and Einsteinmodz. The complaint comprises sixteen claims:

(1) breach of express contract against Christmas and Calibur11; (2) breach of implied-in-fact contract against Christmas and Calibur11; (3) partnership by estoppel against Christmas and Calibur11; (4) fraud against Christmas, BGRMods and Calibur11; (5) breach of fiduciary duty against Christmas; (6) breach of contract against BGRMods, Christmas and Ronding; (7) breach of implied covenant of good faith and fair dealing against BGRMods, Calibur11, Christmas and Ronding; (8) unjust enrichment against BGRMods, Calibur11, Christmas and Ronding; (9) copyright infringement against all defendants; (10) misappropriation of trade secrets against Christmas and Calibur11; (11) rescission of assignment of patent against Christmas and Calibur11; (12) conversion against Christmas, Calibur11, BGRMods and Ronding; (13) declaratory relief against all defendants; (14) accounting against Christmas and Calibur11; (15) money due on open account and/or open book account against BGRMods, Christmas, and Ronding; and (16) writ of attachment against BGRMods, Christmas and Ronding.

On July 13, 2011, defendants filed a motion to dismiss, arguing that defendant Ronding had not been served; that there is no personal jurisdiction over any of the defendants; that venue is not proper in this district; and that the complaint fails to state a claim as to claims one, two, three, four, seven, eight, nine, eleven and thirteen through sixteen. ECF No. 17.

On July 25, 2011, plaintiff dismissed defendant Jim Ronding. ECF No. 22. A day later, it sought leave to conduct discovery relating to the question of personal jurisdiction over the remaining defendants. ECF No. 24. On August 15, 2011, the magistrate judge granted plaintiff's request. ECF No. 37.

On August 16, 2011, plaintiff agreed to withdraw its request for discovery regarding personal jurisdiction; defendants waived any challenge to personal jurisdiction and venue in this district and withdrew their motion to dismiss insofar as it challenged personal jurisdiction and venue. ECF No. 38.

On August 31, 2011, plaintiffs filed their opposition to the motion to dismiss as well as a notice of voluntary dismissal of claims three, seven, eight, fifteen and sixteen in the First Amended Complaint. ECF No. 46.

Defendants filed a reply on September 7, 2011, supporting it with several declarations and exhibits. ECF No. 51. On September 9, 2011, plaintiffs filed a motion to strike the declarations as well as portions of the factual statement in the reply. ECF No. 52.

Based on this procedural history, the court considers the motion to dismiss only as to claims one, two, four, nine, eleven, thirteen and fourteen.

II. Standards For A Motion To Dismiss

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." A court may dismiss "based on the lack of cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Department, 901 F.2d 696, 699 (9th Cir. 1990). A motion to dismiss under this rule may also challenge the sufficiency of fraud allegations under the more particularlized standard of Rule 9(b) of the Federal Rules of Civil Procedure. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003).

Although a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), in order to survive a motion to dismiss this short and plain statement "must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something more than "an unadorned, the-defendant-unlawfully-harmed-me accusation" or "'labels and conclusions'" or "'a formulaic recitation of the elements of a cause of action.'" Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss for failure to state a claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S.Ct. at 1950. Ultimately, the inquiry focuses on the interplay between the factual allegations of the complaint and the dispositive issues of law in the action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

In making this context-specific evaluation, this court must construe the complaint in the light most favorable to the plaintiff and accept as true the factual allegations of the complaint. Erickson v. Pardus, 551 U.S. 89, 93-94 (2007). This rule does not apply to "'a legal conclusion couched as a factual allegation,'" Papasan v. Allain, 478 U.S. 265, 286 (1986) (quoted in Twombly, 550 U.S. at 555, nor to "allegations that contradict matters properly subject to judicial notice" or to material attached to or incorporated by reference into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988-89 (9th Cir. 2001). A court's consideration of documents attached to a complaint or incorporated by reference or matter of judicial notice will not convert a motion to dismiss into a motion for summary judgment. United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003); Parks School of Business v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); compare Van Buskirk v. CNN, 284 F.3d 977, 980 (9th Cir. 2002) (noting that even though court may look beyond pleadings on motion to dismiss, generally court is limited to face of the complaint on 12(b)(6) motion).

Defendants have supported their reply with declarations from Christmas and attorney Yuridia Caire, copies of print-outs from internet news sources about Steven Frazier and copies of two invoices Chip Connect sent to Calibur11, as well as the Memorandum of Understanding plaintiff sent to Christmas. ECF Nos. 51-1 through 51-5. Plaintiff has moved to strike Coy's declaration and the internet stories about Frazier, arguing that they are not cognizable on a motion to dismiss. ECF No. 52. Plaintiff also argues that portions of defendants' factual recitation should be stricken, as it is based on the objectionable material supporting the reply. Defendants respond that the material in Christmas's declaration and the documents about Frazier are offered to rebut factual statements in the opposition to the motion to dismiss. ECF No. 54. Whether or not plaintiff has misstated facts in its memorandum of points and authorities, the court will rely on the first amended complaint and on applicable legal authorities, not on any characterizations of fact included in the points and authorities. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) (a 12(b)(6) motion tests the legal sufficiency of the complaint and review is limited to the complaint). The motion to strike Christmas's declaration and its exhibits about Frazier is granted.

At hearing, defendants argued that the court could consider an invoice from Chip Connect to Calibur11 attached to Caire's declaration because the invoice is mentioned in the complaint. See ECF No. 51-5 at 2 (invoice). A document is not "outside" the complaint for the purpose of a 12(b)(6) motion if the complaint refers to the document and its authenticity is not questioned. Cooper v. Pickett, 137 F.3d 616, 622 (9th Cir. 1997) (quoting Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002)). The court does not find any mention of the invoice itself in the complaint. Plaintiff does allege that despite its misgivings, it shipped Game Vault technology to Christmas; it does not mention invoices, but rather only that Christmas wired money to cover engineering expenses related to Game Vault development. FAC ¶¶ 45-46. As the complaint does not refer to the invoice, the court will not consider it.

Plaintiff does not object to the court's consideration of the Memorandum of Understanding attached to Caire's declaration. ECF No. 51-6 2-3. As it is mentioned in the complaint and plaintiff does not dispute its authenticity, the court will consider it. See FAC ¶¶ 41, 44.

III. Allegations Of The First Amended Complaint

In 2009 plaintiff Chip Connect's predecessor, acting through its employee Steven Frazier, first entered into an Exclusive Reseller Agreement with BGRMods, acting through its president Christmas; the agreement covered resale of Chip Connect's product Intensafire, which modifies a video game controller. FAC ¶¶ 16-18. In April 2010, Christmas formed EinsteinModz to market peripherals, including Intensafire. FAC ¶ 20.

In June 2010, Frazier, Christmas and Sid Garrand, an associate of Christmas's, met at the Electronic Entertainment Expo and discussed the development of a 3-D cover for game boxes. The three agreed to form a partnership to create, design and sell the product, to be called Game Vault. FAC ¶ 22. As a result of Frazier's status as an employee, Chip Connect owns the intellectual property rights in Frazier's designs; Chip Connect also owned Frazier's interest in the partnership with Christmas and Garrand. FAC ¶ 23. One member of Chip Connect's limited liability corporation, Greg McCarry, discussed the partnership in July 2010 and shortly after that, Christmas distributed a financial proforma for the partnership, projecting gross income of $3 million and listing the partners as Christmas, Frazier and Garrand. FAC ¶¶ 25-26.

Between July and December 2010, Frazier worked almost exclusively on the Game Vault. FAC ΒΆ 27. During this time, Christmas repeatedly promised to provide the necessary paperwork for the partnership, but did not follow through. Nevertheless, he was actively marketing the product and obtained orders for it, without notifying Chip Connect. During ...

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