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R&R Sails, Inc. Dba Hobie Cat Company v. Premier Incentive Group

August 23, 2012


The opinion of the court was delivered by: Honorable Janis L. SammartinoUnited States District Judge


Presently before the Court is a motion brought by Defendant Costco Wholesale Corporation ("Costco") to dismiss four of the claims in Plaintiff's Second Amended Complaint ("SAC"). (MTD, ECF No. 9.) Plaintiff opposes the motion (Opp'n, ECF No. 12), and Defendant has filed a reply in support of the motion (Reply, ECF No. 15). The Court deemed the matter appropriate for determination without oral argument and took it under submission pursuant to Civil Local Rule 7.1(d)(1). After careful consideration of the parties' arguments and the law, the Court GRANTS Defendant's motion to dismiss Plaintiff's sole federal claim only. Plaintiff is granted leave to amend, and Defendants are ordered to show cause why the remaining state law claims should not be remanded for lack of subject matter jurisdiction.


1. Factual History

Plaintiff R&R Sails, Inc., d/b/a Hobie Cat Company ("Hobie Cat" or "Plaintiff"), a Missouri corporation with its principal place of business in Oceanside, California, engages in designing and manufacturing several types of boats and kayaks. (SAC ¶¶ 1, 8, Ex. 33 to Notice of Removal, ECF No. 1-8.) Defendant Premier Incentive Group, LLC ("Premier") is a Nevada company in the business of providing various incentives programs to clients. (Id. at ¶ 2.) Defendant Costco, a Washington corporation, is the largest "membership warehouse club chain" in the United States, with stores throughout the country, including California. (Id. at ¶ 3.)

Hobie Cat distributes its boats and kayaks to consumers worldwide "through a complex network of sales representatives and dealers appointed and authorized by Hobie Cat," in a highly regulated system intended to protect its dealers. (SAC ¶ 8.) This system is apparently very important to the operation of the Hobie Cat sales scheme, and "Hobie Cat honors the commitment of its sales representatives and dealers by NOT selling its products outside this sales and dealer chain." (Id. at ¶ 9.) However, in this action Hobie Cat alleges Premier and Costco have circumvented that sales scheme and have thereby undermined Hobie Cat's business model.

In Summer 2010, David Russell of Premier contacted Hobie Cat to inquire about purchasing 100 "Hobie Cat Mirage Oasis" kayaks. (Id. at ¶ 10.) Mr. Russell told a contact at Hobie Cat that Premier planned to use the kayaks for an employee incentive for one of its insurance company clients. (Id.) Based on the volume of kayaks ordered, Hobie Cat offered Premier a discounted price of $161,900, as well as free shipping. (Id.) The kayaks were shipped on November 22, 2010 to the address given by Premier in Las Vegas, Nevada. (Id.) Subsequently, on April 2, 2011, Hobie Cat employees saw at least three Mirage Oasis kayaks on display and for sale at a Costco warehouse store in Carlsbad, California. (Id. at ¶ 11.) After cross-referencing the serial numbers, Hobie Cat found these were the same kayaks sold to Premier in November, 2010. (Id. at ¶ 12.) Hobie Cat has apparently determined that its kayaks have been sold at various Costco locations throughout the United States, including several in California, as well as stores in Japan. (Id.)

Hobie Cat now believes that Premier and Costco have been working together in a scheme to obtain merchandise for sale at Costco warehouses. Under Hobie Cat's formulation, Costco arranged for employees from Premier to buy kayaks from Hobie Cat under false representations, and then to sell or transfer those kayaks to Costco without Hobie Cat's permission or knowledge. (Id. at ¶¶ 13-14.) Hobie Cat had apparently received several inquiries from Costco about buying kayaks for sale in their warehouses, but had declined those requests "as Costco does not fit into Hobie Cat's distribution model." (Id. at ¶ 13.) Thus, Hobie Cat believes Costco devised this scheme with Premier in order to "intentionally circumvent Hobie Cat's dealer network." (Id. at ¶ 15.) These schemes, termed "diverter networks," are apparently well-known by "manufacturers of high-end products," which often spurn Costco's attempts to offer their high-end products for resale in Costco warehouses. (Id. at ¶ 16.) In such schemes, "diverters" like Premier establish the appearance of a legitimate business in order to purchase products that Costco has been unable to obtain directly for resale, in order to circumvent manufacturers' policies and allow Costco to get those products directly from the diverters. (Id. at ¶¶ 16-18.)

Hobie Cat alleges these actions by Premier and Costco have caused "immeasurable harm" to Hobie Cat by damaging its protected trademarks and intellectual property, its goodwill with its customers, authorized sales representatives and dealers, relationships, pricing and profitability, and strategic marketing campaigns. (Id. at ¶ 20.) This action ensued.

2. Procedural History

Hobie Cat first filed claims against Costco and Premier in state court. (See generally Notice of Removal, ECF No. 1.) Defendants were not served with the original complaint. (Id. at ¶ 1.) A copy of the First Amended Complaint ("FAC") was served on Defendants in April, 2011, alleging five causes of action under state law: unfair competition, intentional interference with contractual relations, negligent interference with economic relations, unjust enrichment, and fraud. (Id. at ¶ 2.) Apparently, federal subject matter jurisdiction did not exist over the FAC because, though the parties appear to be diverse, the amount in controversy is not over $75,000. (Id. at ¶ 3.)

Hobie Cat was granted leave to file the operative SAC on November 18, 2011. (Id. at ¶ 4.) The SAC added new causes of action under state law for fraud, conversion, and conspiracy, and also added a federal claim for violation of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. §§ 1961, et seq. (Id.) Asserting federal question jurisdiction based on this new RICO claim, Costco removed the action to this Court on December 8, 2011. A few days later, on December 15, 2011, Costco filed the instant motion to dismiss the newly added causes of action in the SAC, namely the fifth (fraud), sixth (conversion), seventh (conspiracy), and eighth (RICO).


Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the defense that the complaint "fail[s] to state a claim upon which relief can be granted," generally referred to as a motion to dismiss. The Court evaluates whether a complaint states a cognizable legal theory and sufficient facts in light of Federal Rule of Civil Procedure 8(a), which requires a "short and plain statement of the claim showing that the pleader is entitled to relief." Although Rule 8 "does not require 'detailed factual allegations,' . . . it [does] demand[] more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." ...

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